Today - Wednesday, May 6, 2015
- The big drop this morning in Axiall (AXLL -9.4%) is attributed to comments on the company's conference call discussing yesterday's IRS ruling on publicly traded partnerships.
- AXLL says it is reviewing the IRS ruling but does not yet have an update on its private-letter ruling or the ultimate outcome of the rule-making process (Briefing.com).
- Yesterday, the IRS proposed new rules that would bar chemical manufacturers from forming MLPs; Westlake Chemical Partners (WLKP -14.2%) also is slammed for a second straight day, but WLK +2.4%.
- BHP Billiton (BHP -0.3%) shareholders in Australia and Britain voting by proxy overwhelmingly approve the spinoff of South32, which includes some of the miner's smaller assets, paving the way for a listing on May 18; final results will be announced later today.
- The spinoff will produce alumina, aluminum, coal, manganese, nickel, silver, lead and zinc from mines and smelters in Australia, Brazil, Colombia, South Africa and Mozambique; the assets, long overshadowed by BHP's much larger iron ore, petroleum, copper and coal businesses, generated underlying earnings of $446M on revenue of $8.3B last year.
- Forecasts on how much South32 will be valued at have dropped to $5B-$10B since the spinoff was announced last year, as prices for its main products, including aluminum and manganese, have slumped.
- South32 will be ready to look at potential acquisitions after focusing on productivity in its first six months, CEO-elect Graham Kerr says.
- BHP Billiton (NYSE:BHP) remains committed to maintaining or increasing its dividend despite concerns that the policy reduces its financial flexibility, CEO Andrew Mackenzie tells WSJ.
- Mackenzie's comments come after S&P earlier this week revised its outlook on BHP to negative from stable, saying the miner's payout vow could weaken its financial position given the broader downturn in commodity prices.
- BHP -1% premarket.
Tuesday, May 5, 2015
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) says an order by Chile's environmental regulator to shut a waste dump at its Los Bronces copper mine will not impact production or operations there.
- Los Bronces was fined 3.8B pesos ($6.24M) over infractions including acid drainage at the waste dump, the regulator said earlier today; it also said that it has ordered the closure of the dump until "a definitive solution that permits the adequate drainage of acids generated by the project is implemented."
- Continuing protests against Southern Copper's (NYSE:SCCO) proposed Tia Maria copper mine have left another protester dead - the second death in two weeks - and two more wounded.
- Peru's interior minister says he had ordered police not to use lethal weapons, and replaced local law enforcement chiefs after the first fatality, caused by a bullet wound.
- Talks between the government and local officials over the fate of the $1.4B mining project broke down more than two weeks ago and have not resumed.
- Tia Maria has the potential to add 120K metric tons of copper to SCCO's annual supply, but the project has been stalled since three people died in similar rallies in 2011.
- Westlake Chemicals (NYSE:WLK) and Westlake Chemical Partners (NYSE:WLKP) fell sharply today after the IRS proposed new rules that would bar chemical manufacturers from forming MLPs but allow many energy-related companies to use the structure to raise money.
- Pipeline operators and other energy logistics firms have long structured themselves as MLPs to raise capital; newer partnerships, such as those that find and extract oil and natural gas or refine it into fuel also still would be allowed, as would many oilfield services providers that haul, treat, recycle or store the wastewater from oil and gas wells.
- But the IRS says petrochemical production does not qualify unless it is part of a larger refining operation, nor does production of timber products such as wood pulp and paper.
- In today's trade: WLK -5.2%, WLKP -9.9%, AXLL -3.6%, OLN -3.2%, DOW -0.5%.
- Copper prices have risen to a 2015 high and their highest levels since November, as global demand is seen driving prices.
- A series of stimulus programs from China in recent months has helped convince investors that the world’s largest copper consumer is serious about steadying its economic slowdown; at the same time, disruptions in copper mining and supplies have sparked a belief that the market may end the year with global production and demand nearly balanced, rather than with a supply surplus.
- Glencore (OTCPK:GLCNF, ]]GLNCY]]), the world's no. 3 copper miner, reported its Q1 copper production fell 9% Y/Y, partly due to a planned shutdown for maintenance at its Collahuasi mine in Chile; disruptions at operations owned by BHP Billiton (NYSE:BHP) and Freeport McMoRan (NYSE:FCX) also have fueled speculation that a global surplus will shrink this year.
- ETFs: JJC, DBB, CPER, BOM, RJZ, BOS, BDD, JJM, CUPM
- Molycorp (NYSE:MCP) is considering a proposal from senior creditors that would swap at least some of the company's bonds for equity as it struggles to manage $1.6B of debt, Bloomberg reports.
- The plan, which would cut MCP’s debt load and interest cost, reportedly is based on the creditor group’s expectation that the securities would be impaired in a restructuring while the company’s lower-ranking 3.25% convertible notes due in June 2016 would get wiped out.
- The first-lien bondholders are conducting due diligence on MCP’s business, with a focus on how fast its Mountain Pass mining and processing facility in California could ramp up production, according to the report.
- Quebec's government is prepared to buy a rail line and port facilities that service Cliffs Natural Resources' (CLF +10.8%) shuttered Bloom Lake iron ore mine to pave the way for the operation to reopen under new owners.
- The provincial government also is open to buying 20% of Bloom Lake to facilitate a deal, Economy Minister Jacques Daoust says, adding that purchasing the rail and port facilities could lower the mine’s operating costs by as much as $20/ton.
- "We’re trying to ensure the survival of the mine," Daoust says, after CLF suspended production at Bloom Lake in January and sought creditor protection for the operation.
- Vulcan Materials (VMC -3%) is sharply lower after reporting a slightly wider than expected Q1 loss as demand for its construction materials remains "well below normal levels."
- VMC says demand was low during Q1, but "the gradual recovery in construction activity continues across most of our market," and that "as a result of improving market conditions and our continued focus on internal profit improvements, both pricing and margins continue to expand."
- VMC says adverse weather conditions in Georgia hurt Q1 results, though many states in the West and South saw shipment growth; VMC benefited by $14M vs. the prior-year period from lower diesel fuel costs, which offset production challenges related to winter weather.
- Q1 aggregates freight-adjusted revenue rose 17% Y/Y to $380M as shipments increased by 13%, while freight-adjusted average sales prices gained 4%.
- Crude oil prices jump to 2015 highs, with WTI rising above $60/bbl for the first time since December and Brent crude climbing as high as $68.23/bbl, after protests stopped crude flows to the eastern Libyan oil port of Zueitina.
- Oil also was supported by news that Saudi Arabia had raised its official selling prices for its Arab Light grade crude to the U.S. and northwest Europe, pointing to strong demand in those regions.
- Global oil prices posted their largest monthly gain in almost six years in April and are up more than 40% since their lows earlier this year, but some analysts caution that the rally might prove unsustainable.
- The rally "conceals a weak underlying fundamental balance," BofA Merrill says, as it sees U.S. crude double-dipping to $50/bbl before recovering to $57 by year-end.
- BofA says the main reason for the YTD price rally is the increased demand for gasoline as consumers have taken advantage of low fuel prices, but notes headwinds: Refineries are going into maintenance in the fall which will decrease demand for oil, and the strengthening U.S. dollar will pressure dollar-priced commodities such as oil which become more expensive for holders of other currencies as the greenback appreciates.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, TWTI, OLEM
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) reports lower than expected Q1 production at some of its mining assets, with copper output falling 9% Y/Y due to a planned maintenance shutdown at its Collahuasi mine in Chile and lower grades at two other South American mines due to mine sequencing.
- Q1 copper output totaled 350.7K metric tons, below most analysts forecasts, while own-sourced zinc production of 356.2K tons was up 16% Y/Y, nickel production rose 7% at 23.8K tons, and attributable ferrochrome production was gained 15% at 385K tons.
- Q1 coal production rose 4% to 35.6M metric tons, thanks to the commissioning of two new thermal coal projects in South Africa, but Glencore expects a potential output cut at the Optimum coal operation in South Africa to have an impact later in 2015.
- Glencore produced 2.6M barrels of oil, a 52% Y/Y increase, reflecting higher production from Chad.
- Bernstein analyst Paul Gait says the production figures are "disappointing," with base metals and coal lagging expectations.
Monday, May 4, 2015
- Syngenta (NYSE:SYT) fell 7.6% in today's trade, giving up some but not all of its 16% gain on Friday that was sparked by talk that Monsanto (NYSE:MON) had approached the company about a takeover.
- The biggest concern for regulatory approval may involve what would be an unprecedented market share in soybeans and corn seeds for the combined company, and analysts say SYT’s operations in those areas would appeal to a range of buyers including Dow Chemical (NYSE:DOW), DuPont (NYSE:DD), BASF (OTCQX:BASFY, OTCPK:BFFAF) and Bayer (OTCPK:BAYZF, OTCPK:BAYRY).
- Colin Isaac of Atlantic Equities says the deal he always expected to happen is a DuPont purchase of Dow's agriculture unit; CEO Andrew Liveris has suggested Dow is open to divesting the unit, and MON's becoming a much stronger competitor after an SYT takeover could be a catalyst for Dow to more seriously consider exiting the business, which Issac says would be prime pickings for DuPont and its Pioneer seed business.
- A $19.5B bid by DuPont for Dow’s ag sciences business could generate a 7% return on invested capital, according to a report by Laurence Alexander at Jefferies, while adding that such a move is less likely until agricultural markets improve from current trough levels.
- Standard & Poor's reduces its outlook on BHP Billiton’s (BHP +0.1%) credit rating to negative as it forecasts weaker cash flows.
- S&P says continued weakness in commodity prices, combined with BHP’s commitment to a progressive dividend payment, may weaken key financial metrics to below its expectations for an A+ rating without offsetting measures.
- S&P maintains its stable outlook on Rio Tinto (RIO -0.4%), which had been placed on watch for a possible negative ratings action along with BHP and six other iron ore producers.
- Oil production across the Midwest peaked at nearly 10M barrels per day in February, says hedge funder Andrew Hall, and has been falling since. "We have now reached a turning point," says the oil trading legend, and the cutback in supply has "rendered all the doomsday [oil price] forecasts self-defeating."
- Oil has bounced nearly 40% in the past six weeks, and the rally should continue, says Hall, as it will be harder for producers to ramp production back up than it was to cut back.
- Hall's Astenbeck funds were up more than 10% YTD, say sources, and gained 10% last year - no mean feat for an oil bull given the drastic decline in prices.
- EIA data - which led to the agency's prediction of a decline in U.S. output not starting until April - is "essentially an artifice," says Hall, noting it's based on estimates from state agencies that lag by months. A better gauge of output, he says, is an adjustment the agency uses adding up changes to how much oil is in storage, how much was used by refineries, and how much was imported and exported.
- Flirting with $60 per barrel earlier, black gold is down 0.5% to $58.83.
- Source: Bloomberg
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, UGA, USL, DNO, UHN, OLO, SZO, TWTI, OLEM
- Olympic Steel (ZEUS +13.1%) extends Friday's big gains following a strong Q1 earnings beat, as shares are upgraded to Outperform from Underperform with a $17 price target, raised from $12, at Credit Suisse.
- ZEUS is favorably leveraged to both an anticipated reduction in U.S. import volumes and an improvement in U.S. steel prices, Credit Suisse says; even if the steel price recovery is a muted one, the firm believes a reduction in import volumes is enough to drive the stock higher.
- Shares are up more than 40% since Friday, when ZEUS surprised by reporting Q1 earnings of $0.10/share, easily topping an expected loss.
- Hudbay Minerals (HBM -1.6%) says 180 unionized workers are on strike at its Manitoba operations, representing ~12% of its workforce in the province, adding that it has a contingency plans in place and expects operations to continue.
- HBM has four producing mines in Manitoba, including the Snow Lake project it bought last month, plus processing facilities.
- Reports say it is the first time the Manitoba mine workers have gone on strike in 40 years.
- Sibanye Gold (SBGL -9.8%) sinks in early trading after reporting a sharp spike in costs during Q1 amid lower production, but it maintains its FY 2015 production target.
- SBGL’s Q1 cash costs in rands rose to 385K from 289K, with all-in sustaining costs of 473K from 365K in the year-ago quarter.
- Q1 production fell 5.1% Y/Y and 30% Q/Q to 9,808 kg (315.3K oz.), with a fire and conveyor failure at the Kloof mine, electricity shortages from state-owned supplier Eskom and a series of processing problems hurting the quarter that is traditionally slow because of the ramp-up from year-end holidays.
- SBGL keeps its forecast for full-year production unchanged at 50K-52K kg.
- Dow Chemical (NYSE:DOW) says it plans to cut 1,500-1,750 jobs, or as much as 3% of its global workforce, as part of a restructuring aimed at reducing costs by $1B over three years.
- Dow says it will record charges of $330M-$380M in Q2 related to the restructuring.
- Dow says the moves will streamline its organization following the announced plan to separate its chlorine business.
- DOW +0.5% premarket.
- BHP Billiton's (NYSE:BHP) shareholders are expected to approve the biggest ever spin-off in the mining industry on Wednesday, looking to squeeze more value out of a series of long-neglected aluminum and nickel assets.
- The new company, South32, risks a tough May 18 debut on the Australian bourse, with investors nervous about weak commodity prices, short mine life spans and declining ore grades.
- As a result of the uncertainty, analyst valuations vary widely. Morgan Stanley is predicting it may start with a market cap worth A$8.5B ($6.7B) and Investec around $12B.
- Previously: BHP outlines plan to spin off South32 (Mar. 16 2015)
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