Over 25-yrs in Global Materials & Soft Commodities

Charles Spencer

Equity Bottom-Up

Angang Steel Co Ltd (H) / Equity Bottom-Up

INVESTMENT VIEW:  The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe.  Chinese steel demand and pricing are forecast to be weak in 2019, yet raw material costs remain high.  We recommend staying short <a href="https://www.smartkarma.com/entities/203" target="_blank" data-smartkarma-citation="entities:203:1">Angang Steel Co Ltd (H) (347 HK)</a> shares with a PT of HK$5.

INVESTMENT VIEW:  The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe.  Chinese steel demand and pricing are forecast to be weak in 2019, yet raw material costs remain high.  We recommend staying short Angang Steel Co Ltd (H) (347 HK) shares with a PT of HK$5.

Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

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<ul>
<li>
<a href="https://www.smartkarma.com/entities/23731" target="_blank" data-smartkarma-citation="entities:23731:1">Vale SA (VALE US)</a> have had two major fatal dam-failures in three years</li>
<li>Possible (probable?) design flaw</li>
<li>Expect all Vale's iron ore operations to be technically audited</li>
<li>Substantial Management &amp; Board changes inevitable</li>
<li>Probability that a portion of Vale's existing operations will fail engineering inspection.</li>
<li>Forecast resultant capacity constraints</li>
<li>
<a href="https://www.smartkarma.com/entities/13" target="_blank" data-smartkarma-citation="entities:13:1">Rio Tinto Ltd (RIO AU)</a>,  <a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1">Bhp Billiton (BHP AU)</a>, <a href="https://www.smartkarma.com/entities/41" target="_blank" data-smartkarma-citation="entities:41:1">Fortescue Metals (FMG AU)</a> to benefit from lost production</li>
</ul>



Vale SA (VALE US) have had two major fatal dam-failures in three years
Possible (probable?) design flaw
Expect all Vale's iron ore operations to be technically audited
Substantial Management &amp; Board changes inevitable
Probability that a portion of Vale's existing operations will fail engineering inspection.
Forecast resultant capacity constraints

Rio Tinto Ltd (RIO AU),  Bhp Billiton (BHP AU), Fortescue Metals (FMG AU) to benefit from lost production


Vale in Trouble - Expect Rio, BHP, FMG to Benefit (Flash Note)

Investment Conclusion: We recommend closing our long-<a href="https://www.smartkarma.com/entities/13" target="_blank" data-smartkarma-citation="entities:13:1">Rio Tinto Ltd (RIO AU)</a>/short-<a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1">Bhp Billiton (BHP AU)</a> following recent trading updates from both companies which helped to narrow the previous valuation gap we identified in our Aug-18 note: <a href="https://www.smartkarma.com/insights/us-20bn-in-lost-market-cap-looks-hard-to-justify-recommend-long-rio-short-bhp" target="_blank" data-smartkarma-citation="insights:23456">US$20bn in Lost Market Cap Looks Hard to Justify: Recommend Long Rio; Short BHP</a>

Investment Conclusion:  We recommend closing our long-Rio Tinto Ltd (RIO AU)/short-Bhp Billiton (BHP AU) following recent trading updates from both companies which helped to narrow the previous valuation gap we identified in our Aug-18 note: US$20bn in Lost Market Cap Looks Hard to Justify: Recommend Long Rio; Short BHP

RIO & BHP:  Valuation Gap Gone; Closing Long-Rio/Short-BHP

Thematic (Sector/Industry)

<ul>
<li>Quantifying nuclear statistics with substantial discrepancies</li>
<li>LT contracts &amp; speculative hoarding driving recent 40% spot price increase</li>
<li>Primary/secondary Uranium supplies currently 112% of 2017 demand</li>
<li>Uranium supply deficits extremely unlikely before 2022</li>
<li>Global Uranium demand to fall 25-40% by 2050</li>
<li> Primary Uranium sector LT SELL</li>
</ul>
We have independently audited global nuclear construction statistics in order to determine future Uranium demand.  Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies.  Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen &lt;2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations.  In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases.  Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.


Quantifying nuclear statistics with substantial discrepancies
LT contracts &amp; speculative hoarding driving recent 40% spot price increase
Primary/secondary Uranium supplies currently 112% of 2017 demand
Uranium supply deficits extremely unlikely before 2022
Global Uranium demand to fall 25-40% by 2050
 Primary Uranium sector LT SELL

We have independently audited global nuclear construction statistics in order to determine future Uranium demand.  Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies.  Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen &lt;2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations.  In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases.  Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.

Uranium - About to Enter Its Own Nuclear Winter

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Morningstar and PitchBook hosted the 10th annual Management Behind the Moat Conference in Chicago on Nov. 7 and 8, offering our institutional clients an opportunity to engage with the management of 49 public companies we think have structural competitive advantages, or economic moats, as well as two private companies worth watching. This report distills the highlights from company presentations. A roster of all companies that participated in the conference, including those that held one-on-one meetings with investors, can be found on Page 2 of the attached document.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/069/790/original/img%201.JPG?1542165661" class="editor-image img-responsive" data-smartkarma-image-id="69790"></figure>

Morningstar and PitchBook hosted the 10th annual Management Behind the Moat Conference in Chicago on Nov. 7 and 8, offering our institutional clients an opportunity to engage with the management of 49 public companies we think have structural competitive advantages, or economic moats, as well as two private companies worth watching. This report distills the highlights from company presentations. A roster of all companies that participated in the conference, including those that held one-on-one meetings with investors, can be found on Page 2 of the attached document.

Morningstar Management Behind the Moat 2018: Conference Highlights

Australia

BHP Group Limited operates as a mining company.  The Companyengages in the exploration, development, production and processing of iron ore, metallurgical coal, and copper. BHP Group serves customers worldwide.

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BHP Group Ltd (BHP LN)

Angang Steel: Headwinds Intensify

INVESTMENT VIEW: The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe. Chinese steel...

Charles Spencer

Vale in Trouble - Expect Rio, BHP, FMG to Benefit (Flash Note)

Vale SA (VALE US) have had two major fatal dam-failures in three years Possible (probable?) design flaw Expect all Vale's iron ore operations to...

Boost Research

RIO & BHP: Valuation Gap Gone; Closing Long-Rio/Short-BHP

Investment Conclusion: We recommend closing our long-Rio Tinto Ltd (RIO AU)/short-Bhp Billiton (BHP AU) following recent trading updates from both...

Charles Spencer

Uranium - About to Enter Its Own Nuclear Winter

Quantifying nuclear statistics with substantial discrepancies LT contracts & speculative hoarding driving recent 40% spot...

Boost Research

Morningstar Management Behind the Moat 2018: Conference Highlights

Morningstar and PitchBook hosted the 10th annual Management Behind the Moat Conference in Chicago on Nov. 7 and 8, offering our institutional...

Morningstar, Inc.

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)