Monday, July 27, 2015
- Syngenta (NYSE:SYT) says a $2B breakup fee that suitor Monsanto (NYSE:MON) has pledged to pay if its proposed $45B merger fails would apply only in limited cases, leaving its shareholders exposed to the bulk of regulatory risks.
- SYT tells Reuters that based on its legal interpretation of MON's proposal, the payment would be triggered only if horizontal antitrust concerns were to trip up the deal, an interpretation MON has rejected.
- Bernstein analyst Jeremy Redenius says that if the interpretation is accurate, it would amount to a "huge omission" in the guarantees offered to SYT shareholders.
- Canada’s silver mining sector gets some much-needed consolidation with First Majestic Silver's (AG -12.5%) friendly takeover of SilverCrest Mines (SVLC +16.6%), and the deal is praised by Desjardins Capital analyst Michael Parkin, who calculates that SVLC’s Santa Elena mine in Mexico generated impressive free cash flow of US$2.99/oz. of silver equiv. production in Q1.
- Parkin notes the deal boosts AG’s production by ~26% and improves its balance sheet by adding $30M of cash, and he thinks Santa Elena may beat its guidance this year; the mine is expected to produce 4M-4.4M silver equiv. oz., but Q1 production reached a record 1.35M silver equiv. oz.
- The analyst sees potential for a higher bid on the deal, considering Santa Elena's impressive production and SVLC is generating free cash flow and has a relatively solid balance sheet.
- Indonesia's government says it reached a deal with Freeport McMoRan (FCX +1.6%) that will allow the company to export up to 775K metric tons of copper over the next six months.
- As part of the deal, FCX agrees to deposit the last $20M installment into an escrow account for building a second copper smelting facility; the government also may lower FCX's export tax to 5% from 7.5% as progress is made in building smelters in the country.
- FCX says copper shipments from one of the Grasberg mine in West Papua, one of the world's largest, could take place this weekend.
- Newmont Mining (NEM +0.8%) agrees to sell its 60% stake in the Valcambi gold refinery in Switzerland to a subsidiary of Indian jewelry company Rajesh Exports Ltd. for $119M
- NEM says the sale is part of its plan to get back to its basics after buying its equity interest in the refinery 11 years ago.
- Rajesh, the world's largest gold jewelry maker, says Valcambi's technology will help raise the capacity of its Indian refinery to 200 metric tons/year next year from 80 metric tons currently.
- Randgold Resources (GOLD -2.3%) says it continues to make progress in dealing with throughput challenges at its Tongon mine in the Ivory Coast, and says it has stepped up its exploration effort around the mine following the introduction of a new mining code.
- CEO Mark Bristow says the mine's gold recovery rate was improving, despite problems caused by an erratic grid power supply, and plans to upgrade the processing plant capacity at the mine by installing a fourth stage crusher at the end of the existing circuit.
- The CEO says the company has taken a fresh look at its Nielle permit, which hosts the Tongon mine, and has generated several exploration targets, the most exciting of which are found in the Boundiali permit.
- First Majestic Silver (NYSE:AG) agrees to acquire Silvercrest Mines (NYSEMKT:SVLC) for C$1.30/share, a 35% premium to SVLC's Friday closing price.
- AG says the acquisition enhances its leading position in Mexico, adding SVLC's Santa Elena Mine to its portfolio of Mexican projects, and will be accretive to net asset value per share, reserves and total resources per share and production per share.
- AG says it will issue ~32.8M shares in the deal, for a value of ~C$154M.
Saturday, July 25, 2015
- U.S. crude oil has officially entered a bear market, having plunged more than 20% since June 10 to ~$48/bbl, amid a worldwide glut that shows little sign of slowing as U.S. production remains near 40-year highs, output from Saudi Arabia and Iraq surges to record levels, and Iran is poised to resume exports soon.
- But even though the price collapse has erased more than $100B in market cap from U.S. E&P companies, attendees at an energy conference this week in Denver reportedly talked about how they had lowered finding and development costs, sounding as if they were more likely to grow rather than shrink.
- "We have been expecting the current downturn to be as severe as the one in 1986... but not worse than that," Morgan Stanley wrote this week, but with oil rolling over again, the firm believes a worst-case scenario could be in play.
- Stanley says it underestimated OPEC's high production this year - the main reason why the re-balancing of oil markets has not gained momentum - and means the oil crash could turn out to be worse than 1986; if so, it would be the worst in at least 45 years.
- ETFs: USO, OIL, XLE, UCO, UWTI, VDE, ERX, OIH, SCO, XOP, BNO, DBO, DWTI, ERY, DIG, DTO, DUG, BGR, USL, XES, IYE, IEO, IEZ, DNO, FENY, PXE, PXJ, FIF, OLO, SZO, NDP, RYE, FXN, OLEM, DDG
Friday, July 24, 2015
- For the first time since the data began being collected in 2006, hedge fund and other sizable speculator types went net short the yellow metal in the week ended July 21, according to the CFTC, reporting a cumulative net-short position of 11,345 futures contracts.
- Gold put in another fresh five-year low today before bouncing to close modestly higher, but has been in the red nearly every day this month.
- Earlier this week, Goldman's Jeffrey Currie says more pain is ahead for gold, and sees the price soon slipping below $1K per ounce (it closed today at $1,098).
- ETFs: GLD, IAU, PHYS, SGOL, UGL, DGP, GTU, GLL, UGLD, DZZ, GLDI, OUNZ, DGL, DGZ, DGLD, AGOL, GEUR, UBG, GYEN, QGLDX
- Alamos Gold (AGI +7.6%) is upgraded to Outperfrom from Market Perform at Raymond James on valuation, but the firm cuts its price target to $6 from $8, which would still imply a near double from current levels.
- After AGI closed its merger with AuRico Gold in early July, the firm believed investors would be better off to stay on the sidelines; AGI has since fallen an "unjustifiable" 46% in two weeks vs. gold at 7%, so the firm believes investors now would benefit in adding to positions as the risk/reward profile has swung in their favor.
- Freeport McMoRan (FCX -10.3%) tumbles another 10% on continued weakness following yesterday's Q2 earnings report and the continuing decline in commodities, exacerbated by news that Chinese manufacturing activity hit a 15-month low; shares have shed ~18.5% in two days.
- Goldman Sachs says copper is headed for a seven-year-long bear market cycle after recently slumping to five-month lows; the firm cuts its three-, six- and 12-month copper price forecasts to a respective $5,200, $4,800 and $4,800 per ton from $5,500, $5,550 and $5,200, as well as its 2017 and 2018 forecasts to $4,500 from $7,000 and $8,000 respectively.
- Cowen cuts its FCX price target to $20 from $30, noting the combined forces of extreme negativism over commodities and idiosyncratic investor discontent have led to investor capitulation, yet the firm still sees value in the shares and would begin to selectively add positions upon further weakness (Briefing.com).
- Vale (VALE -3.4%) dropped below $5/share to its lowest level in a decade and remains sharply lower as Brazil's real reaches its weakest level in 12 years against the dollar, extending a slide that began Wednesday on rising concerns about the government’s inability to get its budget and debt problems under control.
- Morgan Stanley cut its recommendation for Brazilian equities to the equivalent of Sell, citing this week’s cut in the country's target for the budget surplus before interest payments, which the firm says should restrict the pace of economic growth.
- Vale this week reported record Q2 iron ore production, but that hardly seems like good news with decimated ore prices; Citigroup says the best current trade in the stock would be to bet on further losses in iron ore.
- Also: PBR -3.6%, EBR -4.2%, ELP -3.7%, CIG -6.2%, CPL -4.7%, SBS -2.9%, BSBR -3.5%, BBD -3.6%, ITUB -3.2%.
- ETFs: EWZ, BRF, BRZU, EWZS, BRXX, BRAQ, BZQ, BRAZ, BRAF, UBR, DBBR, FBZ
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) reports a $3B loss for H1 and says it will cut 53K jobs, 35% of its workforce, over the next few years.
- Announcing underlying interim earnings were more than a third lower than last year but were better than expected, Anglo says it will suspend $1B of capital spending that had been planned by the end of next year.
- Results include a one-time $3.5B charge, including $2.9B from a writedown on the value of Anglo’s huge Minas Rio iron ore project in Brazil.
- The job cuts include a reduction of 6K jobs at overhead operations, including 4K jobs in corporate office operations, which the company says should result in $500M in cost savings.
- CEO Mark Cutifani says the miner aims to sell more assets to maintain a target of $3B in proceeds from disposals, but would not sell core assets to cover the dividend, which it maintains at $0.32/share - a move that was uncertain after its Kumba Iron Ore unit passed on its own dividend a few days ago.
- After receiving $1.6B earlier this month from the sale of its stake in building materials company Lafarge Tarmac, Anglo expects to raise another $1.4B from the sale of non-core assets including some copper, coal and platinum ones over the next couple of years.
- Anglo has suffered more than peers from the drop in metals prices, mostly due to higher-cost iron ore operations than its larger competitors and a platinum division afflicted by rising costs and falling prices.
- Due to persistent weakness in the commodity market, Lonmin (OTCPK:LNMIY), the world's third-biggest platinum producer, may cut as many as 6,000 jobs, reducing annual output by 100K ounces.
- The downsizing would equate to a 20% cut in the company's workforce. Lonmin is now reviewing its capital structure and will likely make an announcement by November.
- Gold continued its slide on Friday, on course for its biggest weekly loss in nine months, as a breach of key support levels pushed more sellers to cut their exposure.
- Spot gold fell as much as 1.2% to $1,077 an ounce, bringing its losses this week to more than 4%.
- Copper is also feeling the burn amid a rout in commodities and mining stocks. The red metal extended its slide to the lowest price since 2009, heading for a 4.6% drop this week.
- ETFs: GLD, IAU, PHYS, SGOL, UGL, DGP, GTU, GLL, JJC, UGLD, DZZ, GLDI, COPX, OUNZ, CU, DGL, DGZ, DGLD, AGOL, GEUR, CPER, UBG, GYEN, CUPM, QGLDX
Thursday, July 23, 2015
- Vale (NYSE:VALE) missed production estimates for nickel for a second consecutive quarter, coming as a plunge in metal prices makes the company’s plan to sell as much as 30% of the nickel unit in an IPO less likely.
- Vale's Q2 nickel output rose less than 9% to 67.1K metric tons, missing consensus expectations for 73.9K tons, which analysts at BMO call “poor” and puts H1 production at 136K tons, or less than 45% of the company’s annual target of 303K tons.
- Q2 operations were affected by a fire at its operations in Sudbury, Ontario, which cut nickel production by 5K tons, furnace maintenance in Indonesia and a brief shutdown for plant improvement at the Onca Puma project in Brazil; Vale plans to close facilities at Sudbury and Thompson in August for maintenance.
- Lonmin (OTC:LNMIF) is set to cut more than 5,000 jobs as a result of the slump in platinum prices, with an announcement expected tomorrow as part of its quarterly production update, Sky News reports.
- Lonmin reportedly also could review options to strengthen its balance sheet, which could include a rights issue and new debt facilities.
- It is not known if a job cuts number above 5,000 could lead to further strikes, Sky News says.
- Freeport McMoRan (FCX -10.2%) tumbles to new 52-week lows amid uncertainty about the company’s direction and the outcome of its energy unit’s share sale, given the downward spiral for commodities.
- "All options are on the table,” including asset sales and curtailing operations, CFO Richard Adkerson said in today's earnings conference call following a reported $1.85B Q2 loss.
- Although some of the decisions ultimately could prove beneficial, the breadth of possibilities is disconcerting to investors, says Clarkson analyst Jeremy Sussman.
- With copper prices at six-year lows and current oil prices still far below the $72/bbl carrying value on FCX's books, additional impairments could become necessary if conditions do not improve soon.
- Alcoa (NYSE:AA) closes on its $1.5B acquisition of RTI International Metals (NYSE:RTI), integrating the company as a standalone business unit unto its downstream engineered products and solutions segment, and announces a realignment of its downstream segment into two separate units.
- The RTI acquisition expands AA's reach into the titanium market as well as its advanced technologies and materials capabilities, most notably in the aerospace market.
- Sterne Agee CRT says the realignment will allow the high value aerospace assets to be more independent; while Alcoa has stated in the past that a break-up is prevented by technical support overlap, the realignment further silos the aerospace focused operations.
- RBC analyst Fraser Phillips maintains his $6 price target on Cliffs Natural Resources (CLF +10.2%) ahead of the miner's July 29 earnings report.
- The firm expects CLF to report a sequentially weaker quarter due to weaker realized iron ore prices and higher U.S. iron ore costs, partially offset by higher sales volumes, as well as an update on management’s strategy to continue to de-lever the balance sheet, including possible sales of further coal assets.
- Shares have slumped 11% this week alone and have shed 62% YTD, and given that short interest in the stock is high, the slightest amount of favorable news could send shares higher.
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