Today - Friday, March 7, 2014
- Canada's government takes the unusual step of introducing tough new railway regulations aimed at easing a grain bottleneck that has sent the price of oat future contracts soaring to record highs.
- The government will require Canadian National (CNI -0.5%) and Canadian Pacific (CP -1.5%) railways to ship at least 500K metric tons of grains, equivalent to about 5,500 railcars, each week; if they fail to meet the targets, they will be charged C$100K for each day they aren't in compliance.
- The two railways are each currently moving ~2,500 cars/week of grain, a rate that is set to rise by ~500 cars/week until the government's quota has been met.
- The legislation comes as a record grain crop remains stuck in grain elevators across western Canada amid rail-shipping delays resulting from several issues, including harsh weather conditions.
- Copper futures slumped to their biggest loss in more than two years as investors worried about slowing growth in China, which accounts for 40% of the world's copper demand.
- Traders were spooked by China's first default on a bond traded in the mainland, which comes amid broader fears about the impact of China's economic slowdown on demand for industrial metals.
- Copper prices have lost 9.2% YTD as signs of faltering growth in China have raised the outlook for a surplus.
- Top publicly traded producer Freeport McMoRan (FCX) -4.8%.
- ETFs: JJC, CPER, CUPM
- A disruption of natural gas supplies to Europe by an escalation of Russia’s military action in Ukraine may boost LNG demand and prices in Asia and South America, analysts say.
- Russia, which provides Europe with a quarter of its natural gas mainly though Ukraine, has cut supplies twice since 2006; while the current crisis hasn’t interrupted exports, LNG prices will “move through the roof” if flows transiting Ukraine are stopped, Societe Generale says.
- Any potential supply curbs could cause traders to stop selling LNG cargoes out of storage and instead hold them for domestic use, triggering competition for the fuel in South America and Asia.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, KOLD, UNL, NAGS, DCNG
- A check of asset markets following what's currently being interpreted as a strong nonfarm payroll report (175K jobs added vs. 154K expected; UE rate up to 6.7%): Flat ahead of the number, stock index futures are up by 0.5%; gold is down 1.1%, silver down 3.2%, copper off 2.9%; the dollar is up a bit, but mostly against the loonie after a weak jobs number in Canada.
- DIA +0.5%, GLD -1%, SLV -2.9%, JJC -3%, UUP +0.15%
- Previously: Treasury yields fly higher after payroll report.
- Related ETFs: GLD, SLV, DIA, AGQ, IAU, PHYS, UUP, SIVR, USLV, ZSL, SGOL, UDN, UGL, DGP, DOG, GLL, DXD, JJC, DZZ, UDOW, UGLD, SDOW, DSLV, DDM, DGL, DBS, GLDI, DGZ, DBV, AGOL, DGLD, SLVO, FORX, TBAR, UDNT, UUPT, USV, UBG, CPER, GLDE, GYEN, CUPM, GEUR, USDU, GGBP
- Freeport McMoRan (FCX) says power rationing in the Democratic Republic of Congo will not affect its operations in the short term but a reliable energy supply would be crucial for any future expansion plans.
- The Democratic Republic of Congo, Africa’s biggest copper producer, has told miners it will institute an electricity rationing program and its state-owned power company will stop signing new contracts.
- Glencore Xstrata’s (GLCNF, GLNCY) Mutanda and Katanga mining projects and FCX's Tenke Fungurume mine are Congo’s top copper producers; Katanga is scheduled to expand production to almost 300K metric tons by year-end, and Tenke plans to add a second sulfuric acid plant by 2016.
- Cliffs Natural Resources (CLF) dismisses Casablanca Capital's move to nominate directors to the board, and says the activist investor rejected its offer to settle a proxy fight.
- CLF says it offered to allow Casablanca appoint two independent directors to the board with a third director to be appointed on mutual agreement; instead, Casablanca is nominating six directors.
- CLF is postponing its annual meeting originally scheduled for May 13; the new date will be announced at a later time.
- Casablanca is CLF's fifth-largest shareholder, with a 5.2% stake, and has been pushing for new leadership at CLF as well as a breakup of the company.
Thursday, March 6, 2014
- Turquoise Hill Resources (TRQ) +4.1% AH on speculation from the Daily Mail that Rio Tinto (RIO) is preparing to bid ~$8/share for the outstanding 49.2% of the company it doesn't already own.
- Billionaire Robert Friedland holds 3% of TRQ is said to have been against selling out to RIO until recently.
- TRQ holds 66% of the massive Oyu Tolgoi copper and gold mine, but progress on the $6B second stage of the project has been held up by RIO’s inability to strike an agreement with the Mongolian government.
- Axiall (AXLL +9.9%) is upgraded to Buy from Neutral with a $60 price target, raised from $45, at Goldman Sachs, which believes bad news is priced in the share price and earnings could double.
- AXLL shares have dropped sharply over the past year, and the firm says the current price more than reflects headwinds; lower caustic prices from new industry supply, higher natural gas costs, ethylene contract resets, arrested PVC margins, Aromatics oversupply, and operational issues are now widely known.
- Grain elevator and short-line railway operator Ceres Global (CERGF) says it received approval from U.S. and Canadian federal border agencies to link its Saskatchewan terminal to a rail line operated by Burlington Northern (BRK.A, BRK.B).
- The move will allow Ceres to begin construction on the terminal, which will be able to ship 25K bbl/day of light crude and up to 40M bushels/year of grain once it is fully operational.
- Ceres plans to ramp up shipments of light crude at the terminal to as much as 70K bbl/day within three years and install a liquefied natural gas pipeline from Saskatchewan refineries.
- One of the biggest risks to gold miners - aside from lower gold prices - has been country risk where the companies house their mines, but overall country risk is improving, according to a J.P. Morgan analysis.
- The average Fraser PPI score improved for miners in its coverage area, the firm says, as the weighted average of scores using regional NPVs at 5% discount improved 9% over the last survey.
- Newmont Mining (NEM +0.9%) enjoys a boost from Peru’s score, which rose from 42 to 48.5, and from improvements in Africa, as “investors get more comfortable with mining in less developed countries,” J.P. Morgan says.
- Barrick Gold (ABX +0.3%) also could benefit from improvement in Peru; Argentina deteriorated but could be on the verge of changing this year, which also would give Goldcorp’s (GG +0.5%) prospects a boost.
- ETFs: GDX, GDXJ, NUGT, DUST, GLDX, JNUG, RING, GGGG, JDST, PSAU
- Kinross Gold (KGC) says it is suspending operations at its Maricunga mine in Chile after unionized employees went on strike following the failure to agree on a new collective agreement at the mine.
- KGC says it cannot not predict when the employees would return to work or the impact on production.
- Although mining operations have been suspended, the heap leach facility and processing plant remain in operation.
- Maricunga produced ~188K gold equivalent oz. in 2013.
- KGC -2.2% premarket.
- Weaker gold prices are forcing some gold mining companies to sell assets to raise cash, but AngloGold Ashanti (AU) CEO Srinivasan Venkatakrishnan is downplaying speculation that the miner could spin off its Australian assets.
- “It is a good portfolio we currently have,” the CEO says, referring to AU’s global production split of one-third from South Africa, one-third from the rest of Africa and the remainder from the Americas and Australia combined.
- AU is continuing to show faith in Australia, officially opening its 70%-owned Tropicana mine in Western Australia, which is forecast to produce ~500K oz. of gold this year at a cost below that of the company’s global average.
Wednesday, March 5, 2014
- Primero Mining (PPP) announces a secondary offering of ~31.15M shares by Goldcorp (GG), which represent 19.8% of PPP's issued and outstanding common shares (following PPP's acquisition of Brigus Gold, completed earlier today).
- GG will not own any PPP common shares after the offering; PPP will receive no proceeds from the offering.
- PPP halted.
- Potash Corp. (POT +3.9%) and other fertilizer makers rally as FT reports the two largest shareholders in Uralkali have endorsed the logic of restarting a partnership with the Belarus potash export cartel, opening the door to a deal that would end the potash war that has roiled the industry.
- No formal negotiations have occurred between the two companies about restarting their partnership, but the subject is said to have been mentioned informally.
- AGU +1.5%, MOS +1.8%, IPI +4.3%.
- Shares of Sociedad Quimica y Minera de Chile (SQM +5.3%) shot higher this afternoon on news that it will maintain its dividend policy, paying 50% of the distributable net income obtained by SQM during FY 2013.
- Earlier, SQM had reported mixed Q4 results, with revenues declining 18% Y/Y but finishing ahead of estimates; SQM says new supply in excess of market growth was added by existing competitors, which hurt sales volumes in its lithium and iodine businesses.
- "Instead of a multi-year downtrend, with disinvestment putting pressure on prices over time, many of the variables that drive gold prices (lower in 2013) have already reset to an extent," says Nomura, boosting its gold target to $1,335 this year (it's at $1,338 right now) and $1,460 in 2015 from $1,138 and $1,200, respectively. Silver's target is raised to $21.52 from $16.25 (silver's at $21.21 right now).
- ETF outflows are slowing, speculative short positions have cooled, and producers are cutting back new projects. "Long-term demand support from Asian nominal income growth, an evolving post-QE macroeconomic environment and lower disinvestment potential move our gold equilibrium model to now expect price increases over the next three years."
- The team also has a variant take on what might have caused last year's big decline in price, attributing it maybe to an arbitrage opportunity between Chinese and London pricing. "The potential for such negative supply swings has far less potential impact than in late 2012."
- Last week: Gold ETF sees inflow in February.
- ETFs: GLD, SLV, AGQ, IAU, PHYS, SIVR, USLV, ZSL, SGOL, UGL, DGP, GLL, DZZ, UGLD, DSLV, DGL, DBS, GLDI, DGZ, AGOL, DGLD, SLVO, TBAR, USV, UBG, GLDE, GYEN, GEUR, GGBP
- The EU's competition regulator opens an investigation into Huntsman's (HUN -0.4%) acquisition of the titanium dioxide assets of Rockwood Holdings (ROC -1.9%).
- Announced last year, the $1.1B deal would make HUN the world's second-largest producer of titanium dioxide and inorganic color pigments for uses in paints and industrial coatings.
- The total size of Europe's titanium dioxide market is ~€3B ($4.1B), and the European Commission's preliminary investigation said the proposed transaction would raise competition concerns in the market.
- Randgold Resources (GOLD +3.8%) CEO Mark Bristow says the miner has been approached by groups interested in its stalled Massawa project in Senegal and would consider a sale.
- GOLD isn't actively exploring a sale, Bristow says, but the project no longer meets the company’s requirements for development; GOLD wants projects that have 3M oz. of gold reserves using an assumed gold price of $1,000/oz. and an internal rate of return of 20%.
- A moratorium on new mining exploration licenses in Mongolia could be lifted during the spring session of parliament, Mongolia's mines minister says, hoping to lure back foreign investment after a slump last year.
- A ban on the issuing and processing of licenses has been in place since June 2010, leaving in limbo many projects in the mineral-rich country.
- Centerra Gold's (CAGDF) Gatsuurt exploration project is on a list of mineral deposits of "strategic importance" for the Mongolian government to consider, and the miner hopes lawmakers will approve the list this year.
Tuesday, March 4, 2014
- Amcol (ACO) approves another sweetened takeover offer from Imerys (IMYSF) worth $45.25/share, edging yesterday's rival bid from Minerals Technology (MTX) and $2.50/share more than last month's approved offer from Imerys.
- ACO says its board approved the offer and values the deal at $1.7B, including its debt; the company, the world's largest producer of bentonite, has said Imerys' bids are superior to the ones from MTX.