Today - Monday, July 6, 2015
- Alamos Gold (NYSE:AGI) completed its acquisition of AuRico Gold (NYSE:AUQ) last week, a deal that gives it much greater scale that should help it withstand a difficult gold price environment, but TD Securities analysts Steven Green says the combined company still faces numerous challenges.
- Most significant is AGI's relatively high operating costs, with estimated all-in sustaining costs of more than US$1K/oz. in 2016 - above most mid-tier peers - and Green expects AGI's Young-Davidson and Mulatos mines will operate at close to breakeven at current metal prices.
- Young-Davidson is AGI's biggest catalyst, and the miner expects to complete the production ramp-up by 2017, but Green thinks there is still plenty of execution risk.
- Green maintains his Hold rating but cuts his stock price target to $8.50 from $9.
- Goldcorp (NYSE:GG) is started with an Outperform rating and $24 price target at Credit Suisse, which says it is better positioned to generate free cash than competitors Newmont Mining (NYSE:NEM) and Barrick Gold (NYSE:ABX).
- The firm thinks GG’s sale of its Tahoe stake for gross proceeds of ~C$1B adds liquidity to the balance sheet, which remains the strongest among the senior producers; it estimates GG will end Q2 with ~$1B in cash, with the increase over Q1′s $365M allowing the miner to bridge the dividend funding gap while assets continue to ramp up.
- Credit Suisse says GG’s improving free cash flow profile is driven by higher by-product production at Penasquito, the ramp up of Cerro Negro and Eleonore, and lower taxes at Pueblo Viejo beginning in 2017.
- Gold mining stocks generally finished higher in today's trade due to increased Greece jitters: GG +3.1%, NEM +0.8%, ABX +2.6%.
- Copper prices finished at five-month lows, -3.5% to $2.538/lb., on growing concerns that China’s demand for the industrial metal may continue to falter after a series of stimulus measures taken in the last several months has failed to make a dent in the country’s slowdown.
- "Copper is telling you that there are serious problems in China,” says George Gero, a managing director at RBC Capital.
- Also hurting copper was today's slide in crude oil; big drops in the oil price tend to weigh on copper, as many funds trade the two commodities in a single basket, with a heavier share devoted to oil.
- ETFs: JJC, CPER, CUPM
- WTI crude oil settled at a three-month low $52.53/bbl, -7.7%, on a confluence of worries about the Greece debt drama, China’s stock markets and a new flood of Iranian oil; Brent crude fell to $56.50, -6.3%, to snap its 100-day MA.
- WTI has dropped 10% over three straight sessions and Brent more than 7% lower in two consecutive days, breaking out of the narrow trading band of the past three months and risking a deeper slide ahead.
- The energy sector (XLE -1.3%) is easily the worst performing equity group today: CLR -7.4%, NOG -7.8%, OAS -8.5%, DNR -6.7%, WLL -6%.
- Oil supermajors also are sharply lower: XOM -1%, COP -2.8%, CVX -1.1%, BP -3.3%, TOT -3%.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, TWTI, OLEM
- Horsehead Holding (ZINC -14.8%) is downgraded to Hold from Buy at BB&T, which cites the company's June zinc metal production at its Mooresboro facility of 3.7K tons, well below the firm's estimate of 5.1K tons.
- BB&T says ZINC's ability to execute and deliver the $90M-$110M of incremental EBITDA from Mooresboro is increasingly in doubt, and zinc prices have weakened in recent weeks; the timing of market deficits also appears to have been pushed out several months.
- The firm also cuts its full-year estimates to reflect lower Mooresboro production and lower than assumed zinc and nickel prices.
- Axiall (AXLL +3.1%) says Paul Carrico has retired as President, CEO and a board member, effective immediately, with no explanation given.
- Timothy Mann Jr., executive VP of strategy, general counsel and secretary, will serve as interim President and CEO.
- Franklin Resources, which owns a 6% active stake in AXLL, has said it believes the company should be more aggressive in taking actions to increase stockholder value.
- Nymex crude oil futures for August delivery tumble $2.40 (-4.2%) to $54.46/bbl, while ICE Brent crude slides $1.31 (-2.5%) to $58.81/bbl, after Greece overwhelmingly voted against creditors’ conditions for further bailout aid, adding to uncertainty around the country’s eurozone membership.
- "All three possible Greek-related factors - higher risk aversion, a stronger dollar, and a slowdown in the European economy - would be bearish for oil prices,” says Michael Wittner, head of oil research at Société Générale.
- Oil prices also are being pressured by the Iranian nuclear talks expected to conclude this week, which could see heightened Iranian crude exports soon if sanctions are lifted, and Friday's sharp fall in oil prices following the U.S.’s unexpectedly high oil inventory figures and bearish drilling rig count last week.
- The three-week selloff in China’s stock market also has rattled confidence in commodities markets; copper, often watched as a barometer for the broader global economy, -3.6% at $2.539/lb.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, JJC, DTO, USL, DNO, OLO, SZO, CPER, TWTI, OLEM, CUPM
Thursday, July 2, 2015
- Molycorp (OTCPK:MCPIQ) says it received U.S. bankruptcy court approval for $22M in interim debtor-in-possession financing from Oaktree Capital to support its operations.
- The Oaktree loan eventually could run as high as $292M if it is approved in final form at a hearing scheduled for July 20.
- MCP says it now has the funds to continue its operations and to move forward on releasing funds to pay suppliers; between now and the final hearing, the Mountain Pass facility will continue to run "in an orderly and controlled way."
- Earlier: Molycorp lines up new bankruptcy loan from Oaktree
- Potash Corp. (NYSE:POT) reportedly plans to analyze K+S’s (OTCQX:KPLUY) response and reasoning behind the rejection of the Canadian company's takeover offer before deciding on its next move, as it still sees strong logic as well as an opportunity to reach an agreement.
- K+S CEO Norbert Steiner sees the logic behind POT's bid as removing higher-cost production from an oversupplied market; indeed, POT has long preached the virtue of price stability and has questioned plans by rival producers to build new mines.
- By proposing a takeover, POT might be looking for a way to slow construction of K+S’s new Legacy mine, and a deal would hand it another aging and costly potash mine in Germany, Citi analyst P.J. Juvekar says.
- Iron ore prices fell more than 5%, suffering the largest one-day percentage loss since March and falling ~15% since hitting a multi-month high of $65.61/metric ton on June 11.
- Analysts believe a prolonged wet season in the Pilbara region of Western Australia affected output, in particular at mines owned by Rio Tinto (RIO +0.6%), the world’s no. 2 producer of iron ore.
- Traders also noted shipments from Australia and Brazil, another major supplier, have started to increase as the weather improved, and a further decline in Shanghai Rebar futures.
- ANZ says iron ore is likely to fetch $53/metric ton in coming months, while Goldman Sachs is even more bearish, believing iron ore will average $49 in Q3.
- Also: BHP +2%, VALE +1.3%.
- DuPont (DD -2.4%) drops to a new 52-week low after completing the spinoff of its Chemours performance chemicals business, which has been criticized by many analysts.
- RBC maintains its Sector Perform rating but cuts its price target to $64 from $69, saying DD still faces significant forex and other headwinds in many of its remaining businesses; the firm believes DD is fully valued at 9.7x its new post-spin estimated 2016 EBITDA.
- Wells Fargo has a somewhat more favorable view on the transaction, believing it enables DD to dampen earnings cyclicality in its quest to be a science company
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) is planning to cut 5%-20% of staff at head offices around the world as it grapples with a commodity price rout that has hit profits, Reuters reports.
- Anglo, which employs 151K staff globally, likely will announce the cutbacks when it issues H1 results on July 24, according to the report.
- Reuters says the potential job cuts show how CEO Mark Cutifani is having to step up restructuring efforts that began more than a year ago, as some investors are concerned that the plan has run out of steam.
- In an about-face, Molycorp (OTCPK:MCPIQ) has chosen bankruptcy financing from lender Oaktree Capital over a competing offer from secured bondholders, setting off a new round of court fights.
- Terms of the Oaktree financing require MCP to mothball its money-losing Mountain Pass, Calif., rare earths facility, and sell the money-making Neo Material Technologies operations.
- Bondholders say MCP needs to keep Neo to remain viable over the long haul, and that the Oaktree financing would end MCP’s hopes of surviving as a unified company and lead to a sale designed to hand Neo over to Oaktree.
- MCP filed for chapter 11 bankruptcy protection last week.
- K+S (OTCQX:KPLUY) plans to reject Potash Corp.'s (NYSE:POT) $8.6B-plus takeover offer because it considers the bid too low, Bloomberg reports.
- POT said last week that it made a “friendly” takeover bid, believed to be slightly more than €40/share.
- The German company is preparing to announce its opposition to the bid as early as today, according to the report.
Wednesday, July 1, 2015
- It’s time to add to short positions in high-cost iron ore producers Cliffs Natural Resources (NYSE:CLF) and Fortescue Metals (OTCPK:FSUMF), Wolfe Research’s Gordon Johnson says.
- Iron ore prices are "extremely likely" to go below $47, Johnson believes, noting that when prices touched $47 earlier this year, "no one flinched - no capacity was taken permanently offline, while virtually all planned capacity ramps moved forward."
- With ~52M metric tons of oversupply in 2014, an estimated 107.7M metric tons of incremental supply expected from the big four iron ore producers - RIO, BHP, VALE and Fortescue - and the likelihood that Chinese crude steel production will fall for the first time this year since the 1980s, Johnson estimates that 52M metric tons of excess will grow to ~183M in 2015.
- Schnitzer Steel (SCHN +17.3%) bounces back big from yesterday's near-10% drubbing, as the stock price pushes back over the $20 mark for the first time since January.
- SCHN fell yesterday in reaction to mostly disappointing FQ3 results which were hurt by weak ferrous selling prices.
- BofA/Merrill upgraded shares to Buy from Underperform with a $21 price target this morning, believing FQ3 results were a trough and noting steadier scrap prices, cost savings and valuation.
- CF Industries (NYSE:CF) agrees to acquire the remaining 50% equity interest in GrowHow UK Ltd. from Yara International (OTCPK:YARIY) for $580M.
- CF has now agreed to buy out Yara's interest in the 50/50 joint venture operating the GrowHow production units in Britain that was formed in 2010.
- GrowHow owns and operates two nitrogen production facilities in the U.K. with a combined capacity to produce ~0.9M short tons of gross ammonia, 1.2M short tons of AN and 0.4M short tons of NPK compounds.
Tuesday, June 30, 2015
- Corn acreage of 88.897M acres, according to the USDA, is lower than trade forecasts for 89.3M acres. June 1 stocks of 4.447M bushels vs. 4.555M forecast.
- Soybean stocks of 625M bushels vs. 670M expected. Acres of 85.139M vs. 85.171 expected.
- Wheat stocks of 753M bushels vs. 718M expected. Acres of 56.079M vs. 55.867M expected.
- Corn and beans are each up about 2% from flat before the report posted. Wheat is up marginally.
- ETFs: CORN, JJG, WEAT, SOYB, GRU, WEET
- Schnitzer Steel (SCHN -11.8%) is selling off after reporting FQ3 earnings fell to breakeven from $0.19 in the prior-year period, which actually was better than expected, but the 26% Y/Y drop in revenue was disappointing.
- Results were hurt by weak ferrous selling prices, which rose in the second half of the quarter but still fell 31% Y/Y, reflecting weaker export demand and excess steel production.
- In metals recycling - by far SCHN's largest segment at ~75% of revenue - ferrous volumes rose 29% Q/Q and nonferrous sales volumes added 21%, but the rapid decline in ferrous selling prices in FQ2 hurt shipments in FQ3.
- Also, average inventory costs did not decline as quickly as selling prices, which led to a ~$14/ton adverse impact.
- Gold Fields (GFI +0.3%) is upgraded to Neutral from Sell at Goldman Sachs, which sees upside potential in the short term given the rise in gold prices following the developments in Greece.
- However, Goldman continues to believe the South Deep project remains structurally challenged and that production from other assets is tapering.
- The new mine plan for South Deep will be released next year, and Goldman believes the final steady state guidance could potentially be much lower than the 650K-700K oz. given last year; in the event of a downward reassessment, the firm thinks GFI could need to write down resources/reserves to a significant degree.
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