Energy & Materials Sector

• In this insight, we take a look at the potential index changes for F100 and F250 in the run-up to the June 2024 index rebal event.
• Based on the current numbers, we see two F100 expected ADDs/DELs and three other F250 expected ADDs/DELs. The final changes will be decided based 4th June 2024 closing prices.
• There are several names just outside the border requiring small price changes to trigger more index changes. An intra-review change is also possible.

• Glatfelter faced solvency issues after overpaying for Jacob Holm in late 2021
• Turnaround CEO Thomas Fahnemann appointed in July 2022 to address liquidity issues
• Reverse Morris Trust transaction with Berry Packaging leads to 60% increase in stock price, creating NewCo for potential successful turnaround.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

HELLENiQ ENERGY delivered solid Q124 results, with group sales of €3,278m up 5.3% y-o-y, IFRS EBITDA of €350m up 25.4% y-o-y and adjusted EBITDA (mainly stripping out inventory effects) of €338m down 16% compared with Q123. The decrease in adjusted EBITDA was primarily due to the y-o-y decline in refining margins. Net income was up 16% y-o-y to €179m, while adjusted net income fell 35% y o y to €164m, for the same reason. HELLENIQ’s refining business had a good quarter, with volumes increasing 8.1% to 3.987m tonnes and sales increasing 5.5% to €2,963m. The company made progress on its debt restructuring, refinancing €1bn of facilities at a notable margin reduction, extending the average maturity profile by one year.

• Kinetic is a Permian midstream business formed from the merger of Altus Midstream and Blackstone’s Raptor I and Raptor II G&P businesses
• The company is the only large, pure-play Permian midstream business, with two business units focused on Midstream Logistics and Pipeline Transportation
• Kinetic, still 50% owned by Blackstone, is expected to generate reasonable profits in the foreseeable future and presents a stable investment option in the current market environment

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Since the US$535 million secondary placement announcement, Modec Inc (6269 JP)’s shares are down 15% from the undisturbed price of JPY3,320 per share (14 May).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Modec’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 22 May. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• The SPX gapped-up to reverse its 1-month downtrend on 5/3/24, followed by another upside gap on 5/6/24, and yet another on 5/15/24 on the breakout to all-time highs
• All of these gaps remain unfilled which signals upside power, a very bullish sign. These gaps at 5250-5263, 5127-5142, and 5073-5101 are now areas to expect short-term support, if tested.
• Market dynamics remain healthy and the S&P 500, Nasdaq 100, and DJI are all breaking out to new all-time highs, helping validate our bullish outlook.

• The DHIBM-7P pilot vertical well encountered 24 metres of net pay in an overall hydrocarbon column of 37 metres.
• The well was drilled from the pilot hole of the recently drilled Hibiscus South well that had already encountered 5-6 mmbbl recoverable resources.
• The bottom part of this well had been plugged ahead of drilling a horizontal producer in the area (this horizontal well will be drilled next).

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
Sappi’s ESG is “Strong”, driven by its “Strong” Environmental and Governance scores. The Social score is “Adequate”. Controversies are “Immaterial” and Disclosure is “Strong”. 

Sappi is a constituent of the FTSE4Good Index. All of the company’s regions (Europe, North America and South Africa) received a Platinum rating from EcoVadis for corporate social responsibility in FY 2022. The Platinum rating recognises the Top 1% of companies evaluated by EcoVadis.

While JSW Steel’s Q4/23-24 results were soft in our view, the full-year numbers were decent. Operational stats remained robust. The share of value-added products was high and continued to increase. The financial risk profile was unchanged q-o-q, but improved significantly from FYE 2022-23. However, liquidity deteriorated and was barely adequate.

We expect a stronger FY 2024-25 with higher revenue and earnings, as the steel operating environment appears to have bottomed out. Steel prices should remain stable, with possible upside. That said, the higher earnings could be offset by an increase in debt to cover the large and growing capex.

• In the first quarter of 2024, Permian Resources, led by co-CEOs Will Hickey and James Walter, achieved production and free cash flow above expectations, integrated Earthstone ahead of schedule, increased its annual synergy target by $50 million, and executed on accretive mergers and acquisitions with around $270 million of acquisitions announced that quarter.
• Notably, they reported total production of 320,000 barrels of oil equivalent per day and oil production of 152,000 barrels of oil per day.
• To maintain a robust balance sheet, the company minimized its financial leverage to approximately 1x and increased its liquidity to over $2 billion.

• Targa Resources Corp.
• is demonstrating resilience in its financial performance and operational execution, yielding mixed effects on its investment outlook.
• The company reported a robust Q1 2021, achieving record adjusted EBITDA, Permian volumes and LPG export volumes, alongside significant dividend increases and common share repurchases.

• Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) gas exploration and development assets.
• EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
• The release of the Federal Government’s Future Gas Strategy Paper, adds some certainty to the economic outlook and highlights the need for new supply sources to meet forecast demand through the energy transition and to service existing LNG contracts.

• Criterium has signed a binding sale agreement for its interest in the Bulu PSC for US$7.75 mm in cash.
• The price is in line with previous indications.
• This is a very important announcement as it provides more clarity on the divestment, the proceeds of which will boost the company’s balance sheet and allow it to accelerate its investment program and grow production faster.

• After the market close on 20 May, it was reported that Blue Run Ventures (BRV) sold 204.1 billion won (US$150 million) worth of EcoPro Materials in a block deal sale. 
• The block deal sale price was 93,000 won, a 9.7% discount to the closing price on 20 May (103,000 won).
• This block deal sale at a big discount is likely to raise overhang concerns about further block deal sales by BRV Capital in the coming years. 

• Company Forecasts extremely conservative at current and expected metal prices
• Scarcity Value for a liquid, large-cap gold miner in Japan
• Balance Sheet will allow future share buybacks and dividend in the harvesting phase

• Novelis Corporation (0620365D US) Novelis is looking to raise US$1.2bn in its upcoming US IPO. The firm is owned by Indian-listed Hindalco. The deal will consist of 100% secondary shares.
• Novelis is a global provider of aluminum solutions for the beverage packaging, automotive markets, specialties markets and aerospace.
• In this note, we look at the firm’s past performance.

• Following our initiation on Mount Gibson Iron (MGX AU) and Kumba Iron Ore (KIO SJ), recently we initiate coverage on Champion Iron (CIA AU), a pure play with Canadian assets.
• Although it is more richly priced than the other two names, it offers a 50% volume expansion opportunity in FY25/26, subject to financing availability. 
• Trading at 8.6x FY25 (March-end) PE, 4.6x EV-EBITDA, and a 6% dividend yield (subject to capex), this is not our favorite name at the current price due to production uncertainty. 

• Chariot has started to drill the Dartois prospect onshore Morocco.
• The well is targeting a different reservoir system and trapping style than the Gaufrette prospect.
• The main target at Dartois is estimated to hold 12 bcf of gross prospective resources.

Kolibri Global Energy (KEI) has reported Q124 results that saw flat EBITDA quarter-on-quarter as double-digit growth in average production to a record 3,305boepd was offset by lower commodity prices and a one-off increase in operating costs. We have updated our estimates to reflect the results and the recent well reworks, lowering our FY24 EBITDA estimate by 9%. As a result, our valuation of KEI falls from US$7.1 to US$6.9/share. The stock continues to trade at undemanding valuation multiples and, despite the increased volatility, the oil price remains generally supportive of the share price.

• 1Q24 production had been reported previously.
• GeoPark held US$151 mm in cash at the end of March.
• Adjusting for a negative working capital movement of ~US$20 mm in 1Q24, this would have been in line with our forecast.

• IFF is a major supplier to various end markets such as food and beverage, fragrance, home care, and health and wellness
• The company sources natural ingredients from sources like flowers, fruits, and marine products
• IFF is expected to meet expectations in its Q4 ’23 earnings report, with a new CEO expected to bring improvements in operating performance and stock price

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

On 9 May, Pan African announced that it was narrowing its production guidance for the year ending 30 June 2024 to 186–190koz (cf 180–190koz previously), notwithstanding the cessation of production from surface sources at Evander in H2. Group AISC guidance was maintained at US$1,325–1,350/oz (at ZAR18.50/US$) however. Consequently, we have increased our H2 production forecast by 2.5% as well as increasing our H224 gold price by 9.2% to result in a US$20.6m positive variance in H224e revenue, only partially offset by incidental higher costs, to result in a 41.7% increase in H224e normalised EPS and a 19.1% increase in FY24e normalised EPS. Production guidance was also provided for FY25 of 215–225koz, which compares with Edison’s prior (and unchanged – and, in the event, relatively conservative) forecast of 216.6koz.

As with Boda before it, April’s resource update at Kaiser saw substantially all of its resource promoted from the inferred to the indicated category at a materially higher grade of both gold and copper. The close-spaced nature of the drilling required to achieve this will now allow these resources to be quickly and easily promoted to reserve status for the purpose of Alkane’s scoping study – or preliminary economic assessment – to be announced later this quarter.

• Zijin Mining Group Co Ltd H (2899 HK) will replace Xinyi Solar Holdings (968 HK) in the Hang Seng China Enterprises Index (HSCEI INDEX) after the close on 7 June.
• An increase in the FAF for SenseTime Group (20 HK) results in the stock avoiding deletion at the June rebalance.
• Estimated one-way turnover at the rebalance is 2.9% resulting in a round-trip trade of HK$3.8bn with over 1x ADV to trade on the add and delete.

• BP, the energy giant has reaffirmed its annual target and unveiled a new cost-cutting measure, reflecting its bid for financial resilience in an increasingly competitive energy market.
• Despite an unplanned outage at its Whiting refinery, BP posted an adjusted EBITDA of $10.3bn in the first quarter of 2024, underlining a robust financial performance.
• Its operating cash flow, adjusting for seasonal working capital build, was $7.4bn in the reported quarter.

• In the first quarter 2024 earnings, Occidental (OXY) management displayed confidence in their operational execution and diversified asset portfolio.
• OXY reported a strong start to 2024, overcoming a challenging third party outage in the Eastern Gulf of Mexico and exceeding the midpoint of their production guidance.
• The revenue was driven primarily by robust production results in their oil and gas business and outperformance in their Midstream and OxyChem businesses.

• The HSCEI is well-known and well-followed but sees less passive tracking than you might expect. Quiddity teammember Janaghan had expected up to two ADDs and two DELETEs.
• We got one ADD and one DELETE instead as SenseTime Group (20 HK) was “saved” from deletion by a FFW/FAF increase. 
• Relatively smaller flows here at 3% one-way with the big flows on the name changes.

• WestRock Company, in the 3rd Fiscal Quarter 2023, posted a net sales of $5.1 billion, with an adjusted EBITDA of $802 million, higher than expected due to strong execution, productivity gains, and moderating input costs.
• CEO David Sewell attributed the strong results to the firm’s resilience and the hard work of its team, even as they faced comparisons with record results from the prior year quarter.
• However, certain challenges were also observed.

• HWKN is entering fiscal 2025 (March) with a business model that is changing from its historical norms. The revenue mix is changing in fiscal 2025.
• This change should lead to HWKN receiving a higher valuation in the market than it has historically received since the water treatment business is very different from HWKN’s industrial business
• A higher earnings profile for HWKN and earnings continuing to grow in fiscals 2025 and 2026 leads us to raise our price target to $96 from $74

• DNG took advantage of the elevated gold price in Q1, posting significant beats on revenue and profitability.
• This sets the Company up well for another record year and boosts its cash balance for growth initiatives.
• Dynacor continued to return capital to shareholders, buying back 927K shares ($2.7M) during the quarter.

• EOG Resources delivered a solid first quarter 2024 performance thanks to a range of factors, among them solid operational execution, underlining future value creation potential.
• EOG’s commitment to capital discipline, operational excellence, and pioneering sustainability initiatives have set the company up to deliver significant returns.
• It reported a strong financial performance during the quarter, with adjusted net income totaling $1.6 billion and free cash flow generation of $1.2 billion.

• According to public news, China is considering asking local governments to purchase significant amount of unsold homes in the country. 
• Nippon Paint Holdings (4612 JP) is a good proxy for exposure to China property with downside protection.
• China made up 40% of Nippon Paint’s operating profit (1Q24 numbers).  Nippon Paint is the absolute leader in decorative paint in China, with 25% market share in 2023 (TUC).

• SDRL reported first quarter results updating investors on the state of offshore drilling market that has shown little signs of change. Day rates have slowly climbed since last year
• SDRL disclosed a new contract for Sevan Louisiana. There was a considerable amount of time spent on the earnings call for the vessel and it’s 45-day contract.
• SDRL has entered a definitive contract to sell its three jack-up rigs and the joint venture stake that operates them for $338 million.

• Coterra Energy Inc. reported strong first quarter 2024 results, with total equivalent production reaching the high end of guidance at 686,000 barrels of oil equivalent per day.
• This was driven by well performance that exceeded expectations and optimal production timing.
• The company increased its full year oil guidance while holding its natural gas guidance unchanged.

• After the first-quarter 2024 earnings of Vulcan Materials Company, Vulcan confirmed it is on track to deliver a fourth consecutive year of double-digit adjusted EBITDA growth, despite challenging weather conditions during the quarter.
• Adjusted EBITDA for the quarter stood at $323 million, showcasing the durability of the Aggregates business and robust cash generation.
• The pricing environment remains optimistic and gross profit-per-ton expanded, driven by the Vulcan Way of Selling and Vulcan Way of Operating disciplines.

• UPL Ltd (UPLL IN)‘s Q4 FY23 results show a significant improvement in margins to 13% after a drastic fall to 1% in December 2023, despite a 15% YoY revenue decline.
• Revenue drops were driven by lower prices and high-cost inventory liquidation, yet margin recovery signals operational improvements and potential future stability.
• Planning to reduce the debt by raising capital via right issue as well as IPO of Advanta.

• According to Maekyung Business Daily, SK Innovation maybe planning to sell its controlling interest in SK IE Technology (SK IET) which produces separators for rechargeable batteries.
• SK On is experiencing financial difficulties due to the sluggish demand for EVs. SK Innovation’s 61.2% stake in SK IET is worth 2.5 trillion won. 
• SK IE Technology had an earnings shock in 1Q 2024. It had sales of 46.2 billion won (67.8% lower than consensus) and operating loss of 67.4 billion won 1Q 2024.

• Marathon Petroleum Corporation (MPC) exhibits strong financial health and is investing in growth.
• MPC added two new independent directors to its board demonstrating positive signs of expansion and diversification.
• Additionally, the company maintains an optimistic view of the macro refining environment, with a forecasted increase in oil demand driven predominantly by the growing need for transportation fuels.

UPL Limited’s Q4/23-24 results appear to be better than in the past three quarters, with lower declines registered for revenues and EBITDA. That said, we note that this was against a low comparison base, with Q4/22-23 marking the beginning of the downturn. The company has been severely affected by post-patent competition and cheap supply from China, with these not likely to improve much in the near term. The financial risk profile deteriorated significantly, and is now not consistent with the Ba1/BB/BB+ rating. While liquidity appears to be adequate, we expect it to weaken during the year as the company takes on working-capital debt. We highlight that while leverage and the liquidity profile tend to be better at financial year-end, they typically deteriorate significantly during the year. However, the USD 500 mn right issuance should shore up the balance sheet significantly.

• EcoPro Materials (450080 KS) raised around US$320m in its Korean IPO, after pricing the deal at KRW36,200/share. Its six-month IPO lockup will expire on 17th May 2024.
• Ecopro Materials (EPM) manufactures and sells high-nickel precursors, one of the key materials for high-nickel cathode materials for secondary (rechargeable) batteries.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• Devon Energy’s Q1 2024 results exceeded operational and financial targets, setting a strong foundation for continued progress throughout the year.
• The company delivered results that surpassed its targets by a significant margin, including a production output 4% higher than expected, averaging 664,000 BOE per day.
• This output increase was driven by three principal factors: excellent well productivity, improved cycle times across drilling and completion operations, and easing infrastructure constraints across Devon’s Delaware Basin assets.

• Albemarle Corporation’s first quarter earnings of 2024 revealed a net sales of $1.4 billion and adjusted EBITDA of $291 million.
• Despite the decline of 47% year-over-year, which was caused largely by reduced prices, the firm experienced volumetric growth led by the energy storage segment.
• The firm also confirmed its ability to navigate the market dynamism and confirmed delivery of over $9 million in productivity and restructuring cost savings, as part of efforts geared towards aligning costs with the current market situation.

• The first quarter of 2024 was marked by operational disruptions and lower production for CF Industries Holdings Inc., a leading global manufacturer of hydrogen and nitrogen products.
• Unplanned downtime and plant outages caused by severe cold in January resulted in a significant loss of production, which affected the company’s earnings.
• The company reported an adjusted EBITDA of $460 million for the quarter.

• The Mosaic Company’s first quarter 2024 earnings results showed a positive revenue growth and promising expansion initiatives.
• The company generated adjusted EBITDA of $576 million on revenues of $2.7 billion.
• However, Mosaic’s financial performance also included some challenges which the executive team plans to address moving forward.

• The Hibiscus South exploration well on the Dussafu permit has encountered 25 m of pay in an overall hydrocarbon column of 35 m in the Gamba formation.
• This discovery could add ~5-6 mmbbl gross recoverable reserves (~1 mmbbl net to Panoro).
• The Hibiscus South structure is a separate accumulation with a deeper oil-water contact than the nearby Hibiscus Field.

• In March, Modec Inc (6269 JP) announced the TSE had said Modec at 29.3% (end-Dec-23) was below the required 35% tradable shares level required for continued listing on TSE Prime. 
• It announced a “Basic Plan” to comply with the criteria which involved convincing one of the three major corporate holders to sell some. They needed to sell about 6%.
• Mitsui E&S has announced it will sell 32%, and 37% including greenshoe. This is overdoing it in a huge way. Mitsui E&S is getting out. This is a re-IPO.

• Anticipation grows for increased block deals before July 24th’s pre-announcement rule takes effect, emerging as a key investment focus in the local market.
• The local market expects heightened activity in the three weeks post-May 15th, following first-quarter earnings announcements, a strategic move to mitigate insider trading controversies.
• Local traders eagerly await which companies will capitalize on the post-first-quarter earnings window, with a highly anticipated block deal involving SK Innovation selling a portion of its stake in SKIET.

• Modec Inc (6269 JP) has announced a secondary offering of up to 25.2 million shares (including overallotment). The largest shareholder, Mitsui E&S Holdings (7003 JP), is the seller.
• MODEC’s goal with the secondary offering is to reconfigure its shareholder mix to have a diverse base of shareholders who support its long-term strategies and a better tradable share ratio.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will likely fall between 22 and 28 May (likely 22 May).

• Mitsui E&S Holdings (7003 JP) is looking to raise approximately US$451m through a secondary follow-on offering, via selling approximately 21.9m shares (32% of TSO) of Modec Inc (6269 JP)’s stock. 
• The deal is a large one to digest at 81 days of three month ADV. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
• The index changes and indicative weights for the June 2024 index rebal event will be announced after market close on Friday 17th May 2024.
• In this insight, we take a look at the potential index changes and our latest flow expectations.

• Red Pine exploration withdrew previously announced assays for Wawa gold project due to inconsistencies in results
• CEO manipulated assay results, leading to inaccurate data being used for internal mineral resource estimates
• Geological expert Renee Sterk discusses the shady practices in the industry and the consequences of such actions

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

Pan American Silver (PAAS) has seen an encouraging start to the year with Q124 silver and gold production in line with management expectations and costs for both segments below its quarterly guidance. Q1 is typically one of the slowest quarters for PAAS and the company’s maintained guidance points to significant improvements in production and costs in H224. This should be supported by the current strength in commodity prices. We have increased our FY24 EBITDA estimate by 25% and upgraded our valuation from US$22.2/share to US$23.4. We believe there could be further upside to the share price if commodity prices remain at elevated levels and the company delivers on its operational guidance in FY24.

• Valvoline is a vehicle service center focused on quick lube and basic maintenance services.
• They have a new focus as a pure play company after divesting their global products business in 2023.
• The team pitched Valvoline with a price target of $84, representing a 95% price upside and 22% IRR.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• GeoPark is acquiring 49.5 mmboe 2P reserves (>90% light oil), 118 mmboe 3C contingent resources and ~5 mmboe unconventional production across four blocks in the oil window of the Vaca Muerta in Argentina from a subsidiary of Mercuria.
• The Vaca Muerta in Argentina is a hot spot for unconventional development and a strategic area for most supermajors and YPF.
• The formation is estimated to hold 16 bn bbl of oil and 300 tcf of natural gas and produces >350 mbbl/d (x4 since 2019).

• In this insight, we make comparisons between EcoPro Materials (450080 KS) and HD Hyundai Marine Solution (443060 KS) post their IPOs
• Ecopro Materials’ share price is likely to face continued weakness, especially with the potential for a major block deal sale by BRV Capital and end of the lock up period.
• We believe that HD Hyundai Marine Solution’s share price has surged above its intrinsic value. More insiders are likely to start selling HD Hyundai Marine Solution in the coming months.

• On 12 May, The Times reported that Sidara was planning to make a higher bid for Wood after its initial offer was turned down by the company last week.
• This proposal was unsolicited and conditional. Premium is 30%, implied equity value £1,418 million (c.$1.775 million), implied EV £2,508 million; 5.3x EV/Fwd NTM EBITDA. Sidara recognizes value.
• Shares are trading at a lower spread than at the time of Apollo’s 240p proposal. Nevertheless, without a significant sweetening, the likelihood of a deal seems relatively low.

Wheaton’s (WPM’s) Q124 results exceeded both our and the market’s forecasts. It produced more (with the single exception of gold, which recorded a small negative variance in production) and sold more at higher prices than our prior expectations for the period. This led to a positive 5.6% (US$15.8m) variance in sales that was minimally counteracted by a US$0.8m negative variance in costs (including G&A costs) to result in a US$15.3m (10.3%) positive variance in pre-tax profits that, to all intents and purposes, fell straight through to the bottom line.

• The Q1 2024 earnings for Martin Marietta showed some level of optimism for the company’s growth prospects, though the transcript also raises some potential concerns.
• Mr.
• Ward Nye, the CEO, highlighted various positive aspects including steady product demand, favorable commercial dynamics, and recent transactions aimed at optimizing the company’s portfolio.

• Vitesse increased its 2Q24 quarterly dividend 5% to $0.525, reflecting a strong production outlook driven by the execution of management’s strategy to grow the asset base with near-term development acquisitions and organic growth projects that surpass its economic hurdle rates. The current yield is 8.7%.
• Vitesse’s business philosophy is built on the premise of compounding cash invested in oil-oriented producing assets in the Bakken play to sustain and grow the asset base in a fiscally conservative manner to support a fixed dividend.
• Management’s capital allocation framework revolves around returning cash to shareholders through the dividend policy.