Today - Tuesday, October 21, 2014
- Jefferies lowers its commodity price forecasts, cuts 2015 earnings estimates for mining companies it covers by an average of 21%, and downgrades BHP Billiton (BHP +0.6%) to Hold from Buy but maintains a Buy rating on Rio Tinto (RIO +1.5%) and a Hold on Vale (VALE +1.1%).
- The firm expects BHP to outperform over the very long-term but sees limited upside potential over the next 6-12 months, with shares now trading at a premium on price/NPV; BHP also has limited scope to materially grow its dividend over the next year.
- Jefferies maintain its Buy rating on RIO based on relative valuation as well as capital return potential, high return on capital invested and strong free cash flow even in a weaker iron ore price environment.
- Almaden Minerals (AAU +2.3%) says it is reorganizing its structure and will spin off its early-stage exploration projects, royalty interests and certain other non-core assets.
- AAU says it is undertaking the reorganization to focus on the development of its Ixtaca gold-silver deposit in Mexico, and will allow the market to value Ixtaca independently of its early stage mineral exploration and royalty business.
- The U.S. says it will terminate a 15-year-old deal sheltering Russian flat-rolled steel producers from high import duties, and anti-dumping duties will apply beginning Dec. 16.
- U.S. steel producers, including U.S. Steel (X +5%) and Nucor (NUE +2.2%), complained to the Commerce Department in July that the reference price set in a 1999 agreement, which also set a cap on imports, had been below U.S. market prices since 2004.
- However, J.P. Morgan analysts see no reason for buying steel stocks (NYSEARCA:SLX), saying the move impacts only 1.4% of U.S. market share; in fact, the firm suggests shorting steel stocks on the "misinterpretation" of duties on Russian imports of hot rolled steel.
- Other steels also are higher: AKS +3.9%, MT +3.6%, CMC +2.3%, STLD +1.7%.
- Holdings in the GLD fell 1.2% to 751.96 metric tons yesterday, the largest daily decline in a year, and bringing total AUM to the lowest since November 2008.
- Year-to-date, fund holdings are down 5.8% after dropping 41% in 2013.
- Yesterday's drop came even as the metal itself continued a nice run begun earlier this month (it's up another 0.6% today to $1,253 per ounce).
- Overall gold ETF holdings last week touched their lowest level since September 2009.
- ETFs: GLD, IAU, SGOL, UGL, DGP, GLL, UGLD, DZZ, GLDI, DGL, DGZ, OUNZ, DGLD, AGOL, TBAR, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
- RGLD Gold (RGLD +1.2%) agrees to a $175M gold stream transaction with Euromax Resources that will finance a significant portion of the construction of the Ilovitza gold-copper project in Macedonia.
- Euromax will deliver 25% of any gold produced from Ilovitza until 525K oz. have been delivered, and 12.5% thereafter; RGLD's purchase price/oz. will be 25% of the spot price at time of delivery.
Monday, October 20, 2014
- Gold Resource (NYSEMKT:GORO) reports Q3 production of 17.2K gold equiv. oz., which brings total YTD production to ~65.1K gold equiv. oz.; GORO also maintains its FY 2014 outlook at 85K-100K gold equiv. oz.
- Q3 production fell 28% Q/Q as slower than expected mine development resulted in fewer tons delivered to the Aguila Mill; GORO says the production issues revealed needed managerial changes at the Arista mine, which are underway.
- Kaiser Aluminum (NASDAQ:KALU) resumes trading after a halt, -7% AH after Q3 earnings fell 36% Y/Y and missed analyst estimates by a wide mark, citing unanticipated problems at its Spokane, Wash., facility that hurt shipments in the quarter.
- Because of the disappointing Q3 results, KALU now anticipates 2014 adjuste EBITDA will fall slightly below 2012 and 2013 levels; EPS and revenues were $3.82 and 1.36B respectively in 2012, and were $3.65 and $1.3B in 2013.
- Analyst consensus expectations for 2014 EPS and revenues are $3.78 and $1.36B, respectively.
- Citigroup upgrades Freeport McMoRan (FCX +1.5%) and three other names in the mining and energy sector, attracted to their valuations after stocks in its coverage area have been hit by the recent correction in the broader market, even as it downgrades Cliffs Natural Resources (CLF +2.2%).
- Analyst Brian Yu raises FCX to Neutral from Sell following the price decline, saying that while the company remains highly leveraged to global growth based on its copper and oil exposure, FCX has been aggressively selling assets to manage the balance sheet.
- Consol Energy (CNX -0.1%), Newmont Mining (NEM +2%) and Alliance Holdings (AHGP +1.9%) are all lifted to Buy from Neutral.
- Gold Fields (GFI -0.2%) says it remains on track to achieve its production guidance for FY 2014 of ~2.2M gold equiv. oz., and expects full-year costs to come in below earlier guidance; GFI sees FY 2014 costs at ~US$1,090/oz. vs. its previous outlook for $1,125/oz. and all-in costs of ~$1,130/oz. from its prior guidance of $1,150/oz.
- Attributable gold equivalent production for Q3 is seen at ~559K oz. at all-in sustaining costs of $1,074/oz. and all-in costs of $1,096/oz.
- Syngenta (SYT +1.4%) faces escalating legal battles over its sale of genetically engineered corn seeds that some farmers and agricultural companies say have depressed overall market prices for the grain, driving more than $1B in losses for U.S. farmers.
- On Friday, farmers filed complaints against SYT in Alabama, Georgia, Mississippi and Louisiana after earlier lawsuits spanning other farm states and separate cases filed last month by grain exporters Cargill and Trans Coastal Supply, which argued that they lost tens of millions of dollars after Chinese grain inspectors detected the SYT corn in cargoes and turned away shipments.
- SYT says the cases have no merit and that it has been transparent about the approval process for the Viptera GMO corn in question.
- Cliffs Natural Resources (CLF +1.6%) is higher despite a Citigroup downgrade to Sell from Neutral with a $5 price target in a valuation call on the iron ore and met coal miner.
- Citi sees iron ore unlikely to average much above $80/metric ton over the next couple of years, and says Friday's announcement of a covenant breach (max 45% debt to capitalization) and post-asset writedowns could force CLF to cut or eliminate its dividend as well as the stock buyback program.
- CLF is trying to JV or sell its Canadian and Australian mines, but the firm estimates that both currently are posting negative free cash, pressuring potential transaction values.
- Last year's brutal winter left stockpiles at their lowest since 2003, but a production boom has essentially replenished those supplies ahead of the heating season, and the price of natural gas is at its lowest level of the year.
- Stockpiles this spring were less than half of their 5-year average, but should be just 8.7% below normal by Nov. 1, according to the EIA.
- Alongside the fall in prices, traders have cut long positions in natural gas futures to their lowest since August, according to the CFTC, a major reversal from the heavy bullish sentiment as the winter of 2013/14 wrapped up.
- Weather forecasts aren't helping - the NOAA predicts heating degree days will be 12% lower than a year ago (below-normal temperature is still expected, but not as bad as last winter).
- UNG -2.3%
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, KOLD, UNL, NAGS, DCNG
- In a Q3 production update, Hecla Mining (HL +0.8%) says production at Greens Creek totaled 1.9M oz. of silver, exceeding Q2 production of 1.7M oz. as well as Q3 2013 production of 1.8M oz. to remain at the high end of the mine's expected annual production range of 6.5M-7M oz. of silver.
- Says Lucky Friday's Q3 production of nearly 973K oz. of silver, up 103% Y/Y, reflects the impact of the mine now operating at full production levels.
- Platform Specialty Products (NYSE:PAH) agrees to acquire agricultural chemicals maker Arysta LifeScience from a company backed by P-E firm Permira Holdings for ~$3.51B.
- Arysta, which had net sales of $1.5B in 2013, supplies insecticides, fungicides and herbicides.
- PAH says the acquisition will have no impact on its status as a U.S.-domiciled company.
- PAH also issues in-line guidance for Q3, seeing revenues of $195M-$197M vs. $197M analyst consensus estimate and adjusted EBITDA of $51M-$52M, which PAH says would represent a record quarter.
- Vale (NYSE:VALE) says a revised nickel mining contract with Indonesia to extend its contract in the country will require it to raise maximum royalties, cut land holdings and sell another 20% of its shares to local investors.
- Vale will have to pay the Indonesian government a significantly higher royalty rate of 2%-3%, depending on the price of nickel, effective immediately, after paying an average 0.63% royalty on nickel revenues between 2010-13.
- The agreement entitles Vale to continue operations in Indonesia for up to 20 years after its existing contract of work expires in late 2025.
Saturday, October 18, 2014
- A little discussed reason the stock market may have hit bottom and started to recover: The realization that the lowest oil prices in four years will provide a stimulus of more than $1T to global economies, according to Citigroup.
- “A reduction in oil prices also results in a reduction in prices across commodities, starting with natural gas, but also including copper, steel and agriculture,” says Ed Morse, the bank's head of global commodities research.
- U.S. motorists on average are enjoying the cheapest gasoline since Feb. 2011, and they are spending ~$230M/day less at the pump than on July 4, AAA says.
- Alas, some big banks say the collapse in oil is nearly over, but much will depend on whether OPEC supports the price by cutting production, as is the norm, or protects its market share by keeping production steady.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, ERY, XOP, DIG, BNO, UGA, DTO, DBO, DUG, IYE, IEO, CRUD, PXE, USL, UWTI, PXJ, FENY, DNO, DWTI, RYE, FXN, SZO, OLO, DDG, OLEM, TWTI
Friday, October 17, 2014
- Cliffs Natural Resources' (CLF -8.4%) $6B writedown on its Q3 earnings could wipe out shareholders’ equity and could even turn it negative, BMO analyst Tony Robson warns as he points out that CLF had net shareholders’ equity of ~$6B at the end of June.
- Robson notes that new CEOs often take the opportunity to “sweep the broom” and get rid of assets, leading to impairments such as this one, but the sheer size of this charge "essentially confirms, subject to an upturn in prices, that the vast bulk of the company’s investments in the last decade prior to the appointment of new CEO Lourenco Goncalves was misspent."
- Wells Fargo's team says the markdowns call into question the ultimate sale price of CLF's non-core assets.
- Hudson Technologies (HDSN +30.2%) resumes trading after a halt, as it reports the EPA’s issuance of final rule on HCFC allowances for 2015-19 which is more aggressive than the agency's original preferred approach.
- The final rule, which was the lowest proposed approach, provides for virgin R-22 allowances of ~22M lbs. in 2015, 18M lbs. in 2016, 13M lbs. in 2017, 9M lbs. in 2018 and 4M lbs. in 2019, with a final ban on all production effective Jan. 1, 2020.
- HDSN believes the R-22 phaseout provides a significant long-term opportunity for the company.
- CF Industries (CF -2.3%) is reiterated with a Buy rating but with a reduced price target of $283, down from $306, by BofA's Kevin McCarthy after the termination of merger talks with Yara.
- The firm believes CF is settling into a steadier rhythm following a period of substantial change, and now sees three principal reasons to continue to support CF shares: a low-cost position based on inexpensive U.S. natural gas, ongoing share repurchases funded by strong cash flow, and pending nitrogen capacity expansions of 25% in Louisiana and Iowa for H2 2015 and 2016, respectively.
- AK Steel (AKS +11.2%) surges after Nomura upgrades shares to Buy from Neutral and raises its price target to $10 from $7, citing $2 of EPS power by 2016.
- Nomura foresees a material increase in EBITDA and free cash flow for AKS in 2015, owing to significant raw material cost down, accretion from the Dearborn acquisition, improvements in electrical steel markets, higher automotive margins, elimination of substantial weather and outage costs from 2014.
- The firm forecasts 2015 EBITDA of $795M vs. the consensus estimate of $697M and free cash flow of $1.95/share, and sees 2016 EBITDA of $856M and free cash flow of $2.57/share, thanks to additional synergies at Dearborn, further declines in ore prices, and a full-year of contribution from Magnetation.