Today - Monday, September 22, 2014
- Tumbling iron ore prices and the Ebola outbreak are causing distress for mining companies that invested in a risky corner of West Africa; among those is London Mining (OTC:LIIGF), who says it may end an iron ore supply contract with Glencore (OTCPK:GLCNF, OTCPK:GLNCY) over a payment dispute.
- Analysts say Glencore may be seeking to renegotiate a more favorable cash-for-ore deal, as Glencore's move looks much like previous episodes when the company has stepped in to rescue - and then take control of - distressed companies.
- London Mining's off-take deal with Glencore, which advances it cash for future iron ore deliveries, is one of its few sources of working capital.
- Cliffs Natural Resources (CLF -8.5%) plunges to 52-week lows as worries grow over the potential for an economic slowdown in China.
- Chinese steel production grew a mere 1% Y/Y in August, well off 2.6% YTD and 9%-10% growth recognized over the past few years; Wells Fargo's Sam Dubinsky views the data as negative for iron ore pricing, and thinks it means trouble for CLF, whose results could disappoint as the value of assets likely will diminish as pricing continues to fall.
- Also, a Bloomberg weekend report says coal demand in China may peak as soon as this year, which could further hurt coal miners such as CLF.
- Iron ore giants are lower: BHP -3.2%, RIO -2.7%, VALE -4.8%.
- Coal producers: ANR -9.7%, WLT -9.2%, ACI -7.7%, CLD -4.6%, BTU -4.4%, WLB -2.7%.
- After touring Barrick Gold’s (ABX -1.8%) Cortez mine in Nevada, Credit Suisse analyst Anita Soni lowers ABX’s projected EPS for 2015 and 2016 as well as its expected stock price target after projecting another two years until Cortez sees production rivaling the levels it achieved in 2013.
- Cortez produced 1.3M oz. of gold at all-in sustaining costs of $433/oz. in 2013 - making it one of the largest and lowest-cost mines in the world - but Soni cuts her 2015 production estimate to 950K oz. from 1.17M oz. and 2016 to 1.08M oz. from 1.13M, with estimated all-in sustaining costs for 2015 of $671/oz. from $510/oz. and 2016 to $605/oz. from $577.
- RBC's Stephen Walker attended the same investor tour of ABX’s Nevada operations but comes away more positive overall, impressed with the quality of the core producing assets and the Nevada operating team; he thinks ABX’s Nevada mines could produce 2M oz./year of gold, or ~30% of ABX’s current total, on a sustained basis for 15-plus years, assuming key permits are issued.
- Commodity prices as measured by the Total Return Bloomberg Commodities Index reaches new five-year lows, hit by a strengthening dollar, the prospect of a record grain harvest in the U.S. and concerns over weakening economic growth in China.
- The index has dropped more than 12% since the end of June amid falling prices for commodities such as crude oil, soybeans and gold.
- Even industrial metals, one of this year’s best performers in commodities, have started to come under pressure; nickel has dropped 10% since the end of June, copper prices are at three-month lows, and iron ore trades below $80/ton for the first time since 2009.
- ETFs: USO, AGQ, OIL, DBA, CORN, USLV, UCO, ZSL, UGL, SCO, DGP, GLL, JJC, RJA, JJG, UGLD, BNO, WEAT, DZZ, DTO, SOYB, DBO, DSLV, DGL, CRUD, DBS, DAG, DGZ, JJA, DGLD, USL, GRU, DBE, UWTI, JJN, DNO, DWTI, RJN, USV, RGRA, AGA, UBG, AGF, CPER, SZO, BAR, FUD, USAG, OLO, UAG, WEET, DIRT, JJE, BARS, TAGS, NINI, CUPM, ONG, RGRE, ADZ, OLEM, UBN
- Turquoise Hill Resources (TRQ -1.3%) says it completed a feasibility study of a $4.9B expansion of its Oyu Tolgoi mine in Mongolia after confirming the government reduced taxes on the project.
- The latest study will need to be approved by all the mine’s stakeholders before the project can proceed; Oyu Tolgoi is operated by Rio Tinto (RIO -2.8%) and 66% owned by TRQ with the remaining 34% held by the Mongolian government.
- TRQ says the Mongolian tax authority reduced the initial tax-related charges to ~$30M from $127M but will seek further clarity about the latest findings.
- As falling iron ore and other commodity prices threaten to squeeze its profit margins, Rio Tinto (RIO -2.8%) sees 3-D mapping technology is an important way to shore up its profitability.
- Rio says the technology, which the company hopes will revolutionize the way it digs up commodities, is in use at Rio’s West Angelas iron ore mine in Western Australia, and it is conducting trials at other operations including the copper and energy businesses.
- Rio isn’t saying what sort of long-term cost savings it expects via 3-D mapping, but it has estimated that where the application is being used in the Pilbara iron ore mining region, it has mined 250K metric tons more iron ore than it would have otherwise.
- Newmont Mining (NYSE:NEM) says it expects to resume exporting copper concentrate from Indonesia this week after receiving a permit to resume exporting after a long delay related to new export rules and a disagreement over new export taxes.
- NEM does not estimate exports for the rest of the year or say when operations would resume at full capacity, but says all employees would be recalled within eight weeks.
- Prior to the introduction of new export rules in January, NEM had forecast this year's copper concentrate output from its Batu Hijau copper and gold mine in the country of up to 125K metric tons.
- Mechel Steel (NYSE:MTL) -36.6% premarket following weekend reports of Russia's economy minister suggesting bankruptcy is the most likely scenario for the heavily indebted company.
- The head of VTB, one of its creditor banks, says debt restructuring would not help MTL in the long term and that VTB would need to take legal action to recover debts.
Friday, September 19, 2014
- Gold’s downward spiral continues as the yellow metal closed today at an eight-month low and finishing its third weekly loss in a row, pressured by the dollar’s move higher after Wednesday's Fed policy meeting.
- The FOMC meeting "maintains our belief that the process of U.S. monetary tightening continues, and this will encourage further advances in long-term real yields and the U.S. dollar," Deutsche Bank said today in a note.
- Meanwhile, several gold mining stocks have hit new 52-week lows, including Barrick Gold (ABX -2.5%), Yamana Gold (AUY -3.7%), Kinross Gold (KGC -2.7%) and Coeur Mining (CDE -3.6%).
- ETFs: GLD, SLV, GDX, NUGT, AGQ, IAU, DUST, SIL, USLV, SIVR, SGOL, ZSL, UGL, GLDX, DGP, GLL, UGLD, DZZ, DSLV, SLVP, DGL, DBS, DGZ, OUNZ, RING, DGLD, AGOL, GGGG, SGDM, PSAU, USV, UBG, BAR, BARS.
- It's new contract lows across the board in the grains with Dec. corn -1% to $3.34 per bushel, Dec. wheat -2.2% to $4.77, and Nov. beans -1% to $9.61.
- Related ETFs: CORN -1.2%, WEAT -2.1%, SOYB -1.5%, JJG -1.5%.
- For wheat it's a 4-year low following last week's USDA report estimating a record worldwide harvest of 720M metric tons. The USDA also said wheat exports of 314.5 tons in the week ended Sept. 11 were less than half the previous week.
- The same supply report also predicted record U.S. harvests for both corn and beans.
8:59 AM| Comment!
- Molycorp (NYSE:MCP) +5.3% premarket after Oaktree Capital Management discloses a 9.1% stake, or nearly 24.5M shares, in the company.
- Last month, Oaktree agreed to provide MCP up to $400M in financing through credit facilities and the sale and leaseback of equipment at the company's Mountain Pass facility.
- MCP shares had slumped to a new 52-week low yesterday, and have plunged 76% YTD.
Thursday, September 18, 2014
- In the doldrums not long ago, steel stocks are now among the hottest in the market; in the last three months, X +81%, STLD +37%, AKS +30%, NUE +12%.
- Steel Dynamics (STLD +0.6%) was the latest to report a strong summer, guiding for above-consensus Q3 earnings as shipments and metal spreads are forecast to improve in spite of continued elevated import activity; Nucor did so yesterday morning (NUE +0.4%).
- Still, Credit Suisse is not ready to embrace the steel company revival, at least when it comes to AK Steel (AKS -4.8%), whose self-help story has less scope for upside surprise than US Steel (X +0.2%); one obvious contrast is that X is looking at shutting down blast furnace steelmaking capacity in North America, while AKS is buying more of it.
- ETF: SLX.
- The USDA late yesterday gave final approval to its Enlist genetically modified corn and soybeans developed by Dow Chemical (NYSE:DOW), meaning the traits could be on the market in time for the 2015 U.S. planting season.
- While heavily criticized by environmentalists and some farmers, Dow AgroSciences will market the product as an answer to weed resistance problems that limit crop production; heavy use of Monsanto's (NYSE:MON) Roundup has triggered an explosion of herbicide-resistant super weeds, and Enlist would address the problem since weeds have not yet developed resistance to it.
- Enlist is still awaiting approval from the EPA.
- ArcelorMittal (MT +1.5%) is upgraded to Buy from Neutral with a $17.50 price target at BofA/Merrill, which cites margin upside.
- The firm's positive outlook on MT is based on the belief that Europe steel prices have troughed and will rise into Q4, steel margins are expanding with steel prices having proved more resilient than raw materials, and that iron ore will not prove a headwind for earnings from here.
- Air Products & Chemicals (NYSE:APD) says it will reorganize into seven reporting segments when its new fiscal year begins Oct. 1.
- The industrial gases businesses will comprise four units organized by geography - Americas; Europe, Middle East and Africa; Asia; and global - while the other three segments are focused on materials technologies, energy from waste and corporate operations.
- CEO Seifi Ghasemi, appointed in June following pressure from activist investor Bill Ackman, says the move to a decentralized and more efficient structure will create true P&L accountability.
- The strong dollar - it's at its highest vs. the yen since the financial crisis, and performing well against other major currencies as well - for now works as a good excuse for gold's continuing slide.
- Off 1.4% to $1,218 an ounce in morning trade, the yellow metal is lower by nearly 10% since July 4 and closing in on the YTD low of about $1,200 set on January 1.
- Down 2.1% to $18.35 per ounce, silver is at a new low for the year, and roughly back at levels not seen since 2010.
- GLD -0.35%, SLV -0.9% premarket
- ETFs: GLD, SLV, AGQ, IAU, USLV, SIVR, SGOL, ZSL, UGL, DGP, GLL, UGLD, DZZ, SLVO, GLDI, DSLV, DGL, DBS, DGZ, OUNZ, DGLD, AGOL, TBAR, USV, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
Wednesday, September 17, 2014
- Bayer (OTCPK:BAYZF, OTCPK:BAYRY) plans to separate its plastics business, WSJ reports, a move that would further its shift away from its roots in chemicals and toward life sciences.
- Bayer could announce as soon as tomorrow a plan to shed the MaterialsScience unit, but the company reportedly has not decided what form the separation would ultimately take - an outright sale, IPO or spin off.
- The unit, which makes polycarbonate, polyurethane and other polymers had sales last year of €11.2B ($14.4B), down 2.2% Y/Y, and analysts have valued it at ~$10B, but in terms of growth, the business has underperformed Bayer's prescription drug and other life sciences operations.
- Alcoa (NYSE:AA) today felt the impact of its credit downgrade into junk status, selling $1.25B of bonds which paid interest of 5.125%; that's 1.6 points higher than the average rates paid by companies only one notch higher, representing ~$20M more in annual interest payments on the debt.
- Alcoa fell into junk territory when Fitch cut its rating in April, following Moody’s, although S&P puts it at the bottom of investment grade.
- The higher debt costs haven’t fazed investors, who have pushed AA stock up 53% YTD as the company is shifting to higher-growth, higher-margin businesses such as manufacturing specialized parts for the aerospace and auto sectors.
- Steel Dynamics (NASDAQ:STLD) +2.4% AH after guiding Q3 EPS of $0.42-$0.46, substantially above Q2 results and ahead of analyst consensus estimate of $0.38, as STLD expects shipments and metal spreads to improve across the steel operating platform despite continued elevated import activity.
- STLD says demand trends for key steel-consuming end markets is expected to remain favorable, as strength in automotive, manufacturing, energy and construction markets continues to improve.
- The strong guidance follows optimistic outlooks from U.S. Steel (NYSE:X) and Nucor (NYSE:NUE).