Energy & Materials Sector

• Fund Managers Are Long Commodities Again Be careful if you’re heavily long commodities at the moment.
• The Bank of America survey usually always works as a great contra sentiment indicator.
• If fund managers are heavily long commodities – prices tend to top out.

• Multiple tests over multiple zones in multiple horizons were run at the Mopane-1X exploration well.
• The flows achieved during the well test reached the maximum allowed limits of 14 mboe/d.
• The flow rate was constrained by the size of the available surface facilities.

• Select Water Solutions provides a suite of solutions to meet the full life cycle water needs of customers in nearly every major producing region in the US.
• In 2023, the Permian region contributed 48% of total revenue.
• Select’s business is segmented in three reportable segments: Water Infrastructure, Water Services, and Chemical Technologies. 

• On 18 April, a White House official said that any review of the deal between Nippon Steel Corporation (5401 JP) and United States Steel (X US) by CFIUS will continue as scheduled.
• X shares trade at ~5.2x on NTM IBES-consensus EBITDA given priced-in deal risk vs. implied 7x at the time of the winning NSC’s bid, and look attractive relative to comparables.
• There remains a possibility that Nippon could finalize the takeover after the U.S. presidential election, presenting potential upside.

• S&P 500 looks vulnerable. Maintain large cash positions for forseeable future.
• US Dollar bull flagging and may put pressure on equities in near term.
• Nikkei at inflection point. Bulls must stand up here to defend.

• Tally 50 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• No new deals were discussed on Smartkarma this week; although a Lynas Corp Ltd (LYC AU) / MP Materials Corp (MP US)tie-in (again) rumoured.
• Key updates took place on: Azure Minerals (AZS AU), Tietto Minerals (TIE AU), JSR Corp (4185 JP), Shinko Electric (6967 JP), TDCX (TDCX US), and Hollysys Automation Technologies (HOLI US).

• PT Avia Avian (AVIA IJ) saw a pronounced pick up in sales in 4Q2023 and the ongoing benefit of lower raw material prices boosted margins to 5-year highs. 
• The company expanded its distribution in 2023 and will continue in 2024, which coupled with new product launches, especially of economic products, should help to drive higher growth in 2024. 
• PT Avia Avian continues to drive its express service, which also helps to push new product growth. Its market leadership and track record justify valuations with further support from dividends.

• Low-Cost producer of copper and zinc with two of the biggest  ten mines in the world.
• Recent mine acquisition and increased production at existing mines will grow earnings.
• The supply and demand imbalance in copper will lead to higher prices.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Reno de Medici’s ESG as “Adequate”, in line with its Environmental and Governance scores. The company has a “Strong” score for the Social pillar. Controversies are “Immaterial” and Disclosure is “Strong”. 

• On the 8th April, Azure Minerals (AZS AU) shareholders overwhelmingly approved the Sociedad Quimica y Minera (SQM US)/Gina Rhinehart’s Hancock transaction. Shares promptly closed down 7% on regulatory approval fears.
• Those fears are unwarranted. China’s Tianqi Lithium would indirectly own just ~11% in Azure post-deal.  China has recently lifted anti-dumping tariffs on a range of Aussie products. FIRB won’t block.
• An expected approval may have spurred Gina to buy more shares in Lynas (LYC AU). Why buy now if FIRB dings Azure; that outcome would push the whole sector lower.

• HighPeak has pivoted its FY24 development plan to concentrate on free cash flow generation from growth.
• Our updated adjusted EBITDA and free cash flow estimates, incorporating NYMEX reference prices of $79.19/bbl for oil and $2.33/MMBtu for natural gas, are $858 million and $168 million, respectively.
• FY23 free cash flow was negative $271 million.

• What you need to know: • JEV announced that it has commenced a strategic process to explore the spin-off of its hydrogen portfolio.
• We view this as a strong positive for shareholders.
• • Over the past month, JEV also closed a $2.2M private placement and amended the terms on its debentures, setting up the Company for this transaction.

• OPT has entered into a teaming agreement with a major international defense contractor to offer OPT’s Merrows suite of solutions in specific international regions.
• The partnership aims to improve maritime domain awareness through OPT’s Maritime Domain Awareness Solution (MDAS).
• The agreement grants the defense contractor exclusive rights to sell MDAS in certain areas. 

• Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer. 
• That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence. 
• News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been. 

• Lynas Corp Ltd (LYC AU) is the proverbial Aussie battler. Post the 2018 general elections, the new Malaysian government put Lynas on notice it may halt it rare-earth operations. 
• Since then, Lynas’ Malaysian facility, which cuts into China’s near-monopoly on processing elements for defense/aerospace/EV/electronics industries, has (mostly) operated without substantial disruptions. Profit peaked in FY22; but has since rolled-over.
• Gina Rhinehart’s Hancock has now disclosed a 5.82% stake in Lynas; having disclosed a 5.3% stake in MP Materials (MP US) earlier this month. Lynas confirmed discussions with MPM in February.

• The tendering price is ₩8,750, roughly 7% higher than the last close. However, Affinity’s commitment makes this event noteworthy.
• Lock&Lock requires Affinity to target 30%. To reach 95%, securing 25% is needed, much higher than SsangYong C&E, indicating potential price volatility.
• A second public offering is likely due to the widening gap between the ownership threshold and actual acquisition percentage in Lock&Lock. This could impact prices significantly during the tendering period.

• Sherwin-Williams Company, a global leader in the paint and coatings industry, reported a promising review of their fourth quarter 2023 results and outlook for the first quarter and full year of 2024.
• The company has experienced positive growth, with sales growing 4.1% to $23.1 billion and adjusted earnings per share growing 18.6% to $10.35 a share.
• Sherwin-Williams demonstrated robust financial performance during the fourth quarter that has resulted in a record year for the company.

• RPM International’s third-quarter fiscal 2024 results marked their ninth consecutive quarter of record sales and earnings before interest and taxes (EBIT) results, driven by the company’s operational improvement initiatives – the MAP 2025.
• This positive momentum was achieved, notwithstanding lower sales volumes in the Consumer and Specialty Products segments.
• Performance Coatings Group and Construction Products Group led sales growth, benefiting from strong demand from infrastructure and building projects.

• With completion, commissioning and a contract secured, first gas is just around the bend.
• Critically, with the company on the cusp of first gas, it holds first mover advantage over peer group projects where first gas may well be 2026 or later.
• We assign a NAV of $198m or $0.72/share (down from $0.74/share due to spot gas price adjustment) to GAS against a reference share price of $0.15/share.

Alongside Albemarle and SQM, Arcadium Lithium is the third largest producer of downstream lithium chemicals outside China, capturing the full value chain from lithium resource to battery-grade lithium chemicals. The company has strong exposure to high value-add lithium products and boasts a pipeline of advanced development projects that could potentially more than triple its lithium capacity by 2030. Thanks to its established low-cost asset base and cash flow-generative business, Arcadium should be one of the main beneficiaries of the current cyclical lithium market downturn. Coupled with its strong growth profile, the company is well-positioned to capitalise on the inevitable recovery in lithium demand, driven by the secular decarbonisation trends.

• TotalEnergies’s latest earnings indicates a strong balance.
• By executing their two-pillar strategy consistently, the firm has demonstrated a significant increase in cash flows compared to the previous year, offering a capacity for growth in energy production.
• TotalEnergies recorded an adjusted net income shareholder share of $23 billion and an IFRS net income above $21 billion in 2023.

• Kinder Morgan’s fourth-quarter earnings conference call highlighted the company’s robust financial outlook for 2024.
• Richard Kinder, Executive Chairman of Kinder Morgan, projected substantial growth in EBITDA, EPS, and DCF per share for the year ahead, supported by exceptional growth expected in natural gas production and demand, primarily driven by LNG exports and exports to Mexico.
• The company’s strategic expansion of its Natural Gas segment through CapEx and acquisitions reportedly contributed significantly to its bottom-line performance.

• MPLX revealed their fourth quarter results for fiscal 2023, accompanied by an updated outlook for 2024.
• Moreover, the commentary also discussed recent growth executed in strategic priorities as well as minor potential acquisitions.
• In terms of 2023 results, MPLX had a strong year throughout, successfully executing its strategic priorities.

• In the mid-late teens, four refinery groups merged to create two refinery groups – JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
• When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
• That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.

• We’ve discussed for months that we’ll need to see SPX and NDX (QQQ) close below their 20-day MAs/21-dayEMAs for more than 2-3 consecutive days in order to get more cautious.
• Today (Tuesday) marks 3 consecutive days as the DXY climbs to test major $106 resistance, and amid 10- and 30-year Treasury yields breaking above long-term resistances. Caution is warranted.
• Still, in order for there to be a meaningful pullback, important 2-month supports that are currently being tested would need to break, including 4983-5050 on SPX and $425-$433 on QQQ.

• Based on the fourth-quarter 2023 earnings, FMC Corporation’s performance suggests a mixed investment climate.
• Although the company’s plan largely revolves around elements they manage, such as NPI sales and restructuring initiatives, the transition of the crop chemicals market implies a challenging year ahead.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• In the Second Quarter Fiscal 2024 Earnings Conference Call, Bill.com recorded robust profitable growth despite a challenging macro environment as small and medium-sized businesses (SMBs) continue to manage their spending cautiously.
• The company reported year-over-year revenue growth of 22%, non-GAAP net income growth of 48%, and a non-GAAP net income margin of 23%.
• It sees prospects for further growth once SMBs begin spending for expansion.

• Energy Transfer LP reported a transformative year, marking significant changes across the organization and its global workforce of 22,000.
• The company successfully established itself as an independent public entity while maintaining a trajectory of profitable growth.
• The year saw a 5% organic growth, evenly distributed across all business segments and geographic regions, highlighting its broad-based growth capabilities.

• Equinor delivered strong results for the third quarter, with adjusted earnings of $8 billion ($2.7 billion after tax) despite lower prices than in the previous year, indicating the company’s stability in market fluctuations.
• However, net operating income was $7.5 billion and net income was $2.5 billion, lower than adjusted earnings.
• The company is on track to deliver promising cash flows of around $20 billion annually till 2030, exhibiting robust revenue growth.

• Coterra Energy displayed excellent financial results, exceeding oil, natural gas, and BOE (barrels of oil equivalent) guidance for Q4 with below capital guide.
• Oil volumes demonstrated year-over-year growth of 10%, while the company declared a 5% growth for the BOE. The company’s capital is expected to vary between $1.75 billion to $1.95 billion for 2024, investing approximately 60% of projected cash flow.
• In terms of geographic investment, focus will be placed on boosting investment in the Permian and Anadarko basins while retrenching in the Marcellus.

• SDRL enters the second quarter with drill ships undergoing special surveys and day rates slowly creeping higher. 
• The drill ship market has experienced an increase in day rates on the expectation stacked ships eventually become available. We do not believe this will ever be the case
• We are leaving our 2024 earnings model unchanged and raising our 2025 adjusted EBITDA outlook to $677 million from $615 million

• Sealed Air Corporation, in its Q4 2023 earnings, reported sales of $1.4 billion and an adjusted EBITDA of $274 million.
• The results align with the company’s projection, reflecting the ongoing challenges from fluctuating protein cycles and downtrading in the food division as well as a reassured seasonal pickup in the protective segment.
• For the fiscal year of 2023, Sealed Air posted sales of $5.5 billion, slightly over the midpoint of its guidance, along with an adjusted EBITDA of $1.1 billion.

• Tietto Minerals Ltd (TIE AU) has disclosed a revised conditional proposal from Zhaojin Mining Industry H (1818 HK) at A$0.68 per share, a 17.2% premium to the previous offer of A$0.58.
• The offer is conditional on a 50.1% minimum acceptance condition (which can be waived). The offer is declared best and final. 
• Despite the bump, the offer is below the IE’s valuation range of A$0.79 to A$0.93 per share. The IE’s valuation range would be around 25% higher at current gold prices. 

• EDG announced its 2024 exploration program at the Reliance Gold Project.
• Plans include up to 10,000m of diamond drilling, Geochemical sampling, and geotechnical, structural, mineralogical and metallurgical studies, as well as other initiatives.
• Work is expected to commence in early May, well ahead of Golden Triangle peers.

• • The South Lahan area on Block 58 is estimated to hold 55-523 mmbl prospective resources (P90-P10 case) with a mean case of 251.8 mmbbl prospective resources across six prospects in the Ara Carbonate.
• • Combined with the previously disclosed prospective resources of the Fahd area in the north-eastern part of Block 58, Tethys Oil’s unrisked recoverable prospective resources on the block are estimated to be 435.9 mmbbl (Pmean).
• • The geological chance of success ranges from 6% to 11% for the six new prospects.

• The Nong Yao-13 exploration well in the new Nong Yao D area that was targeting multiple zones has encountered >30 feet of new oil play across several new shallow intervals which have not been produced elsewhere on the concession.
• These reservoirs are believed to be recurring across the Nong Yao D area.
• The drilling result confirms that oil has successfully migrated into this area of the block (a factor that was seen to be a risk in the Nong Yao D area) and open the opportunity for further appraisal and exploration drilling in the vicinity to derisk sufficient volumes to justify a future development.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), QV Equities Ltd (QVE AU), Silver Lake Resources (SLR AU), Azure Minerals (AZS AU), China TCM. 
• Lowest spreads: Tietto Minerals Ltd (TIE AU), Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU). 

• A shares were down on the week, not maintaining the month-end bounce after the long weekend. H-shares were mixed. HSCEI was slightly up. 
• Net SOUTHBOUND buying was +HK23bn. SOUTHBOUND ended its consecutive post-CNY daily net buy streak on 25 March, then started a new one. No net sell days since.
• This week saw a LOT of news. State Council Nine Points. CSRC draft regs and legislative work plan. Ratings agency action. Lots of movement. None of it hugely positive.

• On the 30 October 2023, Chinese gold producer Zhaojin Mining Industry (1818 HK) pitched a non-binding off-market Offer for Aussie-listed West African gold miner Tietto Minerals (TIE AU).
• Zhaojin held 7.02% of shares out, and sought 50.1%. Tietto subsequently rejected the A$0.58/share cash proposal. The IE backed out a fair value range of A$0.793-A$0.927/share.
• Zhaojin has now announced it has secured all Chinese regulatory approvals; and that Côte d’Ivoire government approval is not required. Plus Zhaojin bumped terms to A$0.68/share – best and final. 

• We provide a comprehensive introduction to the iron ore sector, covering the drivers and a view of the commodity in the short run. 
• We look at eleven listed names in the space ( from large-cap miners to the juniors deriving a vast majority of their revenues from ore) and list our favorite miners.
• We like Vale (VALE US) for its capital return in large caps, Kumba Iron Ore (KIO SJ)  in midcaps, and Mount Gibson Iron (MGX AU)  in junior miners. 

• Ercros (ECR SM) ‘s advisors will seek an improvement in Bondalti’s €3.6/share offer, which comes amidst a sharp decline in EBITDA compared to 2022, and launched at the bottom of the cycle.
• An improved offer price of €4.4/share, a 22% increase, would represent 6x EV/25e EBITDA, 11.3x 25e P/E, and thus could gain support from the Board.
• Gross spread is 1.25%. Considering the potential for an improved offer price, I’d be long.

• ETU’s land package remains one of the largest (681km2) and most prospective in Ontario, sitting in a top mining jurisdiction in the world spanning 80km along the Porcupine-Destor Fault hosting >100Moz Au.
• The Company has laid out its 2024 exploration plans, highlighting a new focus to high-grade gold showings along the eastern extent of the Hawkins zone – a high probability target for resource growth.
• ETU remains to be one of the cheapest stocks and hosts one of the largest land packages amongst junior explorers.