Energy & Materials Sector

• In this insight, we take a look at the potential index changes for ASX 200, 100, 50, and 20 in the run-up to the June 2024 index rebal event.
• Prior to the June 2024 review, there could be one intra-review change triggered by the completion of the Silver Lake Resources (SLR AU) / Red 5 Ltd (RED AU) deal.
• Separately, I see one ASX 20 change and two ASX 100 changes for the regular rebalance in June 2024.

• Driving strategic revitalization – Nippon Shokubai is a global chemical company with competitive proprietary technology, a track record of sustained free cash flow generation, and a balance sheet with room for optimization.
• It has embarked on a business transformation, strategically focused on expanding its Solutions business with higher- margin performance chemicals and identifying energy, electronics, and life science sectors as growth markets.
• Organizational changes being conducted aim to enhance human resource development and conduct quicker decision-making. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Nickel Industries

• FY23 production of 14,248 bbl/d had been reported previously and the YE23 cash position of US$105 mm (including ~US$15 mm of restricted cash) is very close to previous indications.
• PetroTal is re-iterating its FY24 production guidance of ~17 mbbl/d with US$134 mm capex.
• Production currently trends ahead of guidance with 24,453 bbl/d in January and 17,411 bbl/d in February.

• We are convinced that both bids for CPMC Holdings (906 HK) will go ahead, as they are progressing well. The downside risk is minimal, in our view.
• The strong underlying result justifies a high price for the stock. Excluding distortions from non-recurring items in FY22, earnings have increased by 32.7% in FY23 and 26.8% in 2H23.
• The stock now trades on 13.8x and 12.8x PERs for FY24 and FY25, in line with sector average; but below that for Shanghai Baosteel Packaging-A (601968 CH). 

• Rain Industries (RINDL IN) is one of the global leaders in coal tar pitch and calcined petroleum coke. The company also engages in cement manufacturing.
• The company has been facing heat lately especially business related. The fact that there are goodwill impairments, reversal of DTA and costly refinancing puts Rain in a worrying shape.
• The company also has seen impairment in fixed assets especially the CWIP. The company also faces high liability for its DB plan in Germany.

• Major accomplishments and milestones. The last 12-plus months saw significant advances for TMC with respect to internal execution and achievements on both the operational and financial fronts, as well as industry and political developments that appear conducive to the company’s aim of bringing the first seafloor polymetallic nodule resource into production.
• Advancing scientific knowledge and addressing concerns. As the premier player in the seafloor mining industry’s development, TMC significantly expanded its effort to deepen the scientific knowledge of deep-sea mining’s impact on local environments and, together with independent third parties, develop baseline assessment tools to evaluate the environmental impacts of seafloor mining versus land-based operations.
• The company utilized the data collected during a 4Q22 large-scale pilot collection project and a follow-up environmental data collection campaign conducted in 2H23, which it shared with the international scientific community, to inform its environmental application process with the ISA.

• Back on the 19 Feb, Seven Group Holdings (SVW AU) made a cash/scrip Offer for Boral Ltd (BLD AU) shares not owned, with certain tendering thresholds triggering more cash. 
• Boral has now recommended shareholders to reject the Offer after the independent expert (Grant Samuel) concluded the Offer is neither fair nor reasonable, supporting the view of Boral’s board.
• Grant Samuel backed out a price range of $6.50-$7.13/share, versus SGH’s Offer of $5.96-$6.19/share; and up to $6.39/share including the conditional payments. SGH’s terms were best & final.

• We have discussed for weeks that we will need to see the SPX and Nasdaq 100 close below their 20-day MAs for 2-3 consecutive days in order to get cautious.
• This still hasn’t happened (short-term trend remains bullish). If we get 2-3 closes below the 20-dayMAs, next support would be 4983-5050 on SPX, $425-$433 on QQQ (gap supports from 2/22/24)
• If some or all of these gaps remain unfilled, it is a sign that bulls remain in control. We are seeing a rotation into commodity Sectors, we highlight several buys

West China Cement’s (WCC) FY 2023 results were soft, but in line with expectations. The company’s profitability in Mainland China continued to weaken, albeit this was partly offset by rising sales volumes and ASP from its African operations. As a result, operating profit in Africa climbed above that for Mainland China for the first time, with the African segment accounting for 31% of total revenue and 74% of operating profit.

In our view, the key risk for investors is WCC’s seemingly relentless expansion in Africa, which is likely to further weaken its leverage. Moreover, we are concerned that further expansion in this region will fundamentally change WCC’s risk profile from a relatively stable infrastructure-led Chinese business to one that is highly exposed to event risks in frontier markets. The company’s African businesses could be exposed to higher geopolitical, regulatory and ESG risks, which are less well understood by investors.

• After Perseus (PRU AU) announced it had secured Tanzanian Fair Competition Commission  approval, Orecorp (ORR AU) continued to sit on its hands as, technically, Silvercorp (SVM CN) terms were superior. 
• PRU added 2% overnight bringing its stake to 22% vs SVM’s 21%. SVM said they won’t extend beyond the 22nd March. Something had to give. 
• This morning, PRU bumped its all-cash Offer to A$0.575/share (from A$0.55/share), with 15.6% of shares out intending to accept. SVM have five business days to counter. 

• JSE indices were rebalanced in the closing auction on Friday.
• Turnover for the day on the JSE was R59.3bn, R44bn traded in the closing auction (74%).
• Turnover at the December rebalance was R60bn, where around half traded in the closing auction.

• Secure (SES CN) is recommended as a long investment with a price target of $19 in 2 years, offering a potential 125% return.
• The company has a market cap of $2.6 billion and is viewed as a high-quality company trading at a discounted valuation.
• Secure is transitioning from an energy service company to a waste management/infrastructure company, with an impending asset sale expected to generate $1.15 billion, leading to a substantial buyback and potential stock re-rating.

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.

• Ocean Power Technologies reported 3QFY24 revenue of $1.8 million, up 144% Y/Y from $0.7 million in 3QFY23, driven by sales of WAM-V autonomous vehicles and the contract with the Department of Energy.
• The company has an order book of $3.4 million YTD and growing, with backlogs standing at $3.3 million as of January 31, 2024.
• The company reported 3QFY24 gross profit of $0.8 million, compared with a profit of $0.1 million in 3QFY23.

• State Gas Limited (ASX:GAS) is a junior energy producer and explorer with assets concentrated in the Bowen Basin, Queensland.
• The Rolleston West CNG Project in the Bowen Basin is now in the final stage with mechanical completion and tie-in of the Rougemont-2/3 well anticipated within the next week to be followed by pre-commissioning activities.
• Importantly, first production and shipments are tantalisingly close and whilst the rate will initially be modest, up to 0.75TJd, the project has intrinsic growth potential (up to 1.7TJd) which could fund modest appraisal and evaluation works, particularly converting contingent gas to bankable reserves.

• Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer, with onshore Northern Territory (NT) and US oil/gas production assets.
• EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
• The investment case is building further with the acquisition of the Rosalind Park Gas Plant to provide an immediate, low-capital and operating-cost processing option with nameplate capacity above the Carpentaria Stage I development model.

• The Tender Offer is finally here. JIC announced the official launch after the close today.
• JIC appears to be taking on the SUNY RF risk as-is. The Tender Offer details vs the original expectations in the late June 2023 document are unchanged. 
• Once started, unless a US court approves an injunction causing regulatory delay, this is done. But there are path events. And of course there is a double arb here.

• JSR Corp (4185 JP) notes that the pre-condition for JIC’s tender has been satisfied. The offer price remains unchanged at JPY4,350 per share. 
• The offer remains attractive despite the material re-rating of peers. The tender should succeed when combined with shareholder fatigue and a lack of vocal opposition. 
• The tender requires a 66.7% minority acceptance rate. The gross and annualised spread for a 23 April payment is 0.6% and 7.1%, respectively.

• Back in August, Silvercorp  (SVM CN) bid A$0.15/share and 0.967 scrip for Orecorp (ORR AU); and secured board support after bumping the cash portion to A$0.19/share via an Off-market Offer.
• Perseus Mining (PRU AU) countered on the 22 January with a A$0.55/share Offer, which was rejected by Orecorp, ostensibly over concerns Perseus had not secured Tanzanian Fair Competition Commission approval.
• That regulatory approval has now been satisfied. The Offers for both Perseus and Silvercorp are conditional on 50.1% acceptance hurdles. I think Perseus’ all-cash Offer is superior.

• Gold and Bitcoin prices both remain massively supported by easing financial conditions and a bunch of liquidity in the market.
• While the Fed Funds Rate remains high at 5,5% – liquidity conditions in the market is what really matters for both safe haven assets.
• Meanwhile, J.P. Morgan announced that gold is their number one pick in the commodities market. According to them, the price has room to rise towards $2.500.

• Alternus Clean Energy, Inc. (Alternus) is a transatlantic clean energy independent power producer (IPP) that develops, installs, owns, and operates small utility-scale and community solar parks (5 MW to 200 MW) in the US and Europe.
• The company aims to reach 1.5 GW of operational projects through organic development and strategic acquisition  within the next three years.
• Alternus differentiates itself by focusing on small utility-scale and community solar projects with a fully vertically integrated execution strategy ranging from project development through to long- term asset management.

Wheaton’s (WPM’s) Q4/FY23 results were released after the market close on 14 March, within the context of known metals sales and almost known production. Even so, net earnings were US$2.9m (or 1.8%) better than our prior forecast for the quarter, largely as a result of achieved metals prices that were higher than average market prices. Otherwise, the quarter was characterised by accelerated levels of investment into underlying mineral streams and the announcement of a new, progressive dividend policy.

• • Chariot is initiating a strategic review of its Transitional Power business.
• • The business includes multiple wind and solar projects in Southern Africa (with a solar project already operational in Burkina Faso).
• It also includes a power trading licence in South Africa.

• Encouraging initial results from both the Chaveroo Oilfield Strategic Partnership and the recently closed SCOOP/STACK acquisition point to the merits of adding an organic growth element to Evolution’s asset base.
• The addition increases management’s capital allocation choices to balance reinvesting in the underlying asset base, reducing leverage, and returning cash to shareholders.
• The first three horizontal wells in the Chaveroo field have met or exceeded pre-drill expectations.

• The analysis of eleven samples from the Jetstream #1 well at Topaz by two different laboratories revealed helium content of up to 13.8%, specifically from a sample obtained at 1,801ft in-hole depth.
• Because of the clear presence of small amounts of atmospheric air contamination in the samples, a third party expert from the Woods Hole Oceanographic Institution concluded that 13.8% helium should be considered as representing a minimum concentration estimate .
• The analysis demonstrates an increase from the previous estimates from measurements on site of up to 12.4% helium concentration.

• The Welchau well (ADX WI: 75%) encountered 115 m of liquids-rich gas shows in the primary target formation (Steinalm Formation) between 1452 m and 1567 m.
• The deepest gas shows were encountered at a depth of 1645 m.
• The well has reached TD at 1733 m.

• Gold prices have staged a convincing long-term upside breakout against a backdrop of skepticism, which is contrarian bullish.
• Point and figure charts indicate a measured objective of 2576 over a probable 6–18-month time horizon and a measured objective of 3372 over a probable 3–5-year time frame.
• Gold mining stocks are cheap relative to gold and could offer even more upside potential on an intermediate- and long-term basis.

• I 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.
• Two new deals were discussed this week on Smartkarma: WAM Leaders (WLE AU) scrip-deal for QV Equities (QVE AU); and TASK Group (TSK AU)‘s Scheme with PAR Technology (PAR US). 
• Key updates took place on: Qantm Intellectual Property (QIP AU), Superloop (SLC AU), CIMC Vehicle (1839 HK), JSR Corp (4185 JP), Roland DG Corp (6789 JP), and Outsourcing (2427 JP).

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments: Trial Holdings (5882 JP) and Lianlian DigiTech (2104619D CH) IPOs.
• Event-Driven developments: JSR Corp (4185 JP), Roland DG Corp (6789 JP), Yaizu Suisankagaku Industry (2812 JP), Alumina Ltd (AWC AU), QV Equities Ltd (QVE AU), CIMC Vehicles.

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND a net buyer every day since the end of Chinese New Year. NORTHBOUND a huge net buyer this week, now net buyers in size (RMB +93bn) over 7 weeks.
• For the first time in a while, AH premia among liquid stocks fell convincingly. Narrow AH premia pairs saw Hs outperform more than wide AH premia Hs (vs As).

• We expect to see large volumes of AGL, MNP and INP to trade in the closing auction due to the index harmonisation.
• Passive trackers and hedgers with exposure to vanilla indices will need to sell down their holdings to transition to the SWIX methodology.
• The top buys include: NPN, FSR, SBK, GFI, CPI and PRX.

• Alcoa highlighted improvement in safety and operational performance.
• The company achieved production records at its three smelters in Canada and one in Norway, signalling strong operational capabilities and efficiency.
• Improvements have been credited to a clear focus on values including integrity, operational excellence, and care for people.

• In 2023, Baker Hughes made significant strides in reshaping its operations, resulting in a removal of $150 million in costs, realigning its IET business, and launching efforts to further streamline its OFSE business.
• The company set records regarding all primary financial metrics, including orders, revenue, EBITDA, EPS, free cash flow, and returns.
• Adjusted EBITDA saw an increase of 26% YoY, exceeding prior peak levels by 25%.

• Chevron announced another solid year of earnings for 2023, despite geopolitical turbulence and economic uncertainty.
• The company delivered an adjusted Return on Capital Employed (ROCE) of 14% and returned a record $26 billion in cash to shareholders.
• Moreover, Chevron’s production reached a record high as the company continued to advance on reducing its carbon footprint.

• Newmont Corporation recently released its fourth-quarter 2023 earnings and 2024 guidance.
• Operationally, the company managed to produce 5.5 million ounces of gold at an all-in sustaining cost of $1,444 an ounce with additional production of nearly 900,000 gold equivalent ounces from copper, silver, lead, and zinc in 2023.
• This performance delivered adjusted EBITDA of $4.2 billion and allowed the company to return more than $1.4 billion to shareholders, ending the year with liquidity of above $6 billion.

• Schlumberger, the world’s largest oilfield services company, demonstrated its resilience and adaptability with strong financial results for the fourth quarter and full year 2023, despite the challenges posed by the energy market.
• During the quarterly conference call that featured CEO Olivier Le Peuch and CFO Stephane Biguet, the company reported robust revenue growth, increased margins, and indications of a favorable outlook for 2024 and beyond.
• 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.

• Just out this AM, an article in Bloomberg (J) says “people familiar with the matter” suggest the Tender Offer could be launched as early as 19 March. 
• The language regarding the nature of the China regulatory “approval” is different than recent media articles, but they are in the same vein. 
• Original and updated data, information, grids, etc are shown below. 

• Bloomberg reports that JIC will start the JSR Corp (4185 JP) tender as early as 19 March. Separately, SUNY RF filed a response to Inpria/JSR’s 6 March filing last night.
• My reading of JSR and SUNY RF’s filings suggests that the Court is unlikely to conclude that SUNY RF’s lawsuit will be harmed if JIC proceeds with the tender offer.
• JIC seems comfortable taking on the litigation risk (if required). The key risk remains timing. For a late April payment, gross/annualised spread is 0.6%/4.0%.   

• Terravest is a Canadian company with a market cap of about a billion dollars, trading on the Toronto Stock Exchange.
• The company follows a roll-up strategy of acquiring, restructuring, and operating businesses in industries such as storage tanks and pressure vessels.
• Terravest’s management team has a significant portion of their net worth invested in the stock, and the company has delivered impressive shareholder returns over the past decade.

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

• Galp Energia has announced that the Mopane-2X well has encountered light oil in high quality reservoirs across three horizons.
• The first horizon (AVO-1) was an appraisal target of the same horizon encountered in the Mopane-1X well.
• The pressure regime at both wells is consistent, confirming the lateral extension of the discovery made ~8 km to the East.

• VAALCO’s YE23 cash position of US$121 mm and FY23 WI production of 23,946 boe/d were in line with previous indications.
• The company held 77.3 mmboe WI 2P reserves at YE23 including 15.8 mmbbl in Gabon, 24.5 mmbbl in Egypt, 18.6 mmboe in Canada and 18.5 mmboe in EG. This represents a 1% increase vs YE23 as VAALCO has more than replaced its FY23 production given the strong performance of the producing assets in 2023.
• The FY24 capex budget is US$70-90 mm (we forecasted US$138 mm) as only US$30-40 mm will be spent in Gabon (on long lead items) with a larger than previously expected drilling programme starting in 2025.

• US commercial crude oil inventory build-up slows while refined products’ withdrawal accelerates.
• OPEC+ members announced the extension of their voluntary supply cut of 2.2 million barrels per day to end of June (from end of March as previously announced).
• US refinery utilisation rates show signs of a speedy recovery, rises for the second consecutive week and jumps to 84.9%.

• Gross spread (as of 13 March closing) on an estimated 1 Mondi PLC (MNDI LN) x 0.2701 DS Smith PLC (SMDS LN) exchange equation is 5.6%. New PUSU is 4 April.
• The merger would create a European board and packaging giant. Interloper risk seems low, as are the chances of the deal being contested by antitrust regulators. 
• Mondi and DS Smith are verifying the anticipated synergies resulting from their combination. Considering synergies of 3% of DS Smith revenues, the present value might not cover the premium offered.

• Alumina Ltd (AWC AU) has entered a scheme implementation deed with Alcoa (AA US) at 0.02854 Alcoa shares per Alumina share. The scheme meeting is targeted for 3Q.
• While the offer is not a knockout bid, the 15% increase in Alcoa shares lowers the headcount risk from retail opposition and lowers the bump potential. 
• Regulatory approvals are a formality, and Citic Resources Holdings (1205 HK) lack of support reflects HKEx listing requirements. At the last close, the gross spread was 3.4%.

• We preview Shougang Fushan Resources (639 HK) earnings for FY23. We expect revenue /profit growth of -15%/12% YoY with H2FY23 revenue/profit -1.7%/2.3% YoY due to lower coking coal prices.
• We expect the company to pay an FY23 dividend of 36 HKD cents, implying an 11.3% yield. At the current spot price, the implied yield is 11.3%. 
• The company’s balance sheet is rich in cash, with more than a billion USD (~50% of market capitalization). However, we are skeptical that the company will pay big special dividends. 

• GEVO sold 90,666 MMBtu of RNG in 4Q23, up from 81,271 MMBtu in the previous quarter, which translates to 91% of capacity on an annualized basis, while generating standalone cash EBITDA of $1.3 million, down from $1.7 million in 3Q23.
• The RNG division is expected to achieve $12-16 million in cash EBITDA once the company receives the CARB CI score in 2024.
• This is further expected to increase to $30-38 million if California Low Carbon Fuel Standard (LCFS) prices recover to $200 per metric ton.

• During 2023, Granite Ridge executed its portfolio management strategy to grow the asset base and enhance its organic development growth opportunities.
• FY23 production increased 23% Y/Y, far ahead of management’s initial expectations.
• 4Q23 production averaged 26,036 BOE/d, including 12,283 b/d of oil.

• Metarock Group Ltd (ASX:MYE) is a specialist underground mining contractor across both metallurgical coal and metalliferous hard rock mining, working with most tier-1 operators in the respective spaces.
• Following a difficult 18 months dealing with legacy contracts that required an equity injection, asset sales and ATO payment plan, MYE appears to be coming out the other side, posting an adjusted $49.1m EBITDA over the 12 months to December 31, and reducing net debt to $62.8m which includes $30m of invoice financing.
• Applying H1 FY24 annualised depreciation and interest charges we calculate EBITA of $22.8m for the last 12 months, implying CY23 EV/EBITA of ~4.9x.

Following receipt of the £58.8m second tranche from the Samsung litigation on 24 January, Nanoco plans to return £30m to shareholders via a tender offer (c 38.5% of outstanding shares), alongside a £3m share buyback. After completing this £33m return and repaying c £5m outstanding debt, Nanoco expects to have c £23m cash to accelerate commercial production of nanomaterials at scale. With its validated technology, robust pipeline and strong financial position, we believe the group is positioned to drive long-term shareholder value creation. With Nanoco only valued marginally higher than the second tranche proceeds, we believe the market is undervaluing the group’s several commercial opportunities and intellectual property (IP) despite recent progress.