Energy & Materials Sector

• WA gold explorers and developers are struggling in the market compared to producers
• Value gap between explorers/developers and producers has widened, with little progress in projects
• Cash balances are dwindling for many companies, raising questions for investors about the incentive to fund them

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• Entree Resources (ETG CN) has been in an arbitration proceeding against Rio Tinto PLC (RIO LN) since April 2024.
• After initial hearings earlier in 1H24 we expect final arguments next week. The arbitration committee verdict should come by late 3Q24.
• At stake is the relationship and ownership arrangement between ETG and RIO’s in Oyu Tolgoi, one of the world’s largest copper mines. Just concluded Mongolian elections clear the last hurdle.

• Packaging Corporation of America reported its first quarter 2024 results, including a net income of $155 million, or $1.72 per share, and a total net sales of $2 billion.
• While these figures show a decrease from first quarter 2023 results of $198 million net income, or $2.20 per share, and the same $2 billion net sales, they still mark a significant achievement for the company.
• To tackle inflation, Packaging Corporation of America has been focusing on cost management and improving process efficiencies across its manufacturing and converting facilities.

• 2Q24 production was 21.1 mbbl/d, which was very close to our expectations (21.3 mbbl/d).
•  Production is expected to increase in 3Q24 with the start-up of production at Nong Yao C.
• Half of the planned drilling targets have already been drilled.

• The initial 1.1 km 2D seismic sweep survey shows a seismic reflector at the same depth where gas was intersected at the Jetstream #1 well.
• This is important as it supports the contingent resources estimated in the Competent Persons Report published at the time of the IPO.
• These resources had been estimated with limited reservoir and seismic data.

• On July 8, 2024, Ring increased its 2Q24 production guidance to 13.5-13.7 MB/d of oil (19.5-19.7 MBOE/d) from 13.0-13.4 MB/d of oil (18.5-19.1 MBOE/d) reflecting the continuation of outperformance exhibited in 1Q24 (Figure 1).
• Production volumes are benefiting from outperformance in Ring’s development program and increased operational efficiencies in the company’s base production.
• The midpoint reflects gains of ~2% Q/Q and 15% Y/Y. The Y/Y gain partially reflects the addition of assets acquired in the Central Basin Platform from August 2023.

• Sealed Air Corporation has disclosed its financial outcomes for the first quarter of 2024, presenting mixed results amid shifting market conditions and ongoing strategic adjustments.
• Revenue for the quarter reached $1.33 billion with an adjusted EBITDA of $278 million, indicating robust performance despite the challenging dynamics, particularly in the Protective segment.
• 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.

Kolibri Global Energy (KEI) has provided an update on operations and revised guidance. It now guides to FY24 revenue of US$57–62m and EBITDA of US$43–48m on average production of 3,200–3,700boepd. KEI plans to start drilling its next three wells in the first half of August. These wells will have longer lateral lengths, which should result in better well economics. We have revised our estimates to reflect the latest guidance and operational update. Our valuation of KEI falls slightly to US$6.8/share. The announced intention to initiate a share buyback, as well as the recent inclusion in the Russell Microcap Index, should provide additional support to the shares.

• FMC Corporation delivered mixed first-quarter results for 2024, characterized by solid EBITDA that met the higher end of the company’s guidance and significant improvement in cash flow, yet facing a notable decline in revenue and volume.
• During this period, revenue decreased by 32% compared to the previous year, with a 27% drop in volume primarily attributable to ongoing channel destocking and delayed purchasing behavior by growers, aligning with the trend observed over the past year.
• 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.

• We are updating our estimates to reflect higher expected interest expense in 2Q24.
• On the May 3, 2024, earnings call to discuss 1Q24 results, management indicated that 2Q24 interest expense would be ~$8 million.
• Our previously published 2Q24 interest expense estimate was $7.1 million. 

• Rex Minerals being acquired by major shareholder, Selim Group, for $393 million
• Acquisition comes after extensive partnering process and recent investment by Mac with 16% shareholding
• Rex’s Hillside project in South Australia has historical challenges but now looks set for development with new ownership and funding capabilities

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• The review period for the September rebalance ends 31 July, the changes will be announced in the first week of September and implemented at the close of trading 12 September.
• There are changes expected for each of the Secondary Battery, Bio, Internet, Game and BBIG indices. The Shift Up (462870 KS) listing should result in more changes.
• The largest flows will be in Posco Future M, Ecopro BM, SK Biopharmaceuticals, Alteogen, Douzone Bizon, SKC Co and Kakao Corp.

• AI advancements will increase data center power demand by 160% by 2030, consuming 8% of U.S. electricity.
• A single ChatGPT query uses 2.9 watt-hours of electricity, compared to 0.3 watt-hours for a Google search.
• 2 of the 5 top performing stocks year-to-date in the S&P 500 are utility companies Vistra Corp and Constellation Energy. Utility sector has gained 6.7% in 2024. 

• Schlumberger’s revenue is expected to rise 12.1% YoY and net profit by 15.3% YoY in Q2 2024. Management sees sequential margin growth across divisions.
• Q2 growth is expected to be driven by SLB’s International segment, offsetting North American weakness. The International segment contributed 82% of Q1 revenue.
• SLB announced plans to increase shareholder returns from USD 2.5 billion to USD 3 billion in 2024 and to USD 4 billion in 2025.

• CES Energy (CEU) is an asset lite oil field services company focused on drilling fluids and production chemicals
• Trading at C$5.55 per share with a US$931MM market cap
• Analysts project a 75% upside potential with a valuation of C$10 per share by FY25 due to expected mid-single digit earnings growth and cashflow return to shareholders at a 13% yield

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• OPT has partnered with Unique Group, a UAE-based subsea technology company that aims to deploy OPT’s USVs in the UAE and GCC region.
• The partnership aims to develop a new GCC-specific USV model (WAM-V 22) that adheres to local safety regulations and prioritizes environmental efficiency.
• OPT, a developer of low-carbon marine power solutions, signed an OEM agreement with Teledyne Marine, a supplier of maritime equipment.

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.

• China Vanke
• PT Pertamina (Persero)
• Sunny Optical Technology Group

• Rex Minerals (RXM AU) has entered a scheme implementation deed with MACH Metals Australia at A$0.47 per share, a 70.9% premium to the undisturbed price (5 July).
• The key conditions are shareholder and FIRB approvals. FIRB approval should be forthcoming as Salim is the largest shareholder and the cordial Indonesia-Australia relations.
• While the offer represents a 10-year high, it implies multiples, which are light compared to precedent transactions. Nevertheless, this is a done deal. At last close, the spread was 9.3%.

• Deepak Nitrite spending INR 9000 crore on capex for backward integration and forward integration along with focus on import substitution with foray into domain like Polycarbonates and Fluorination
• Deepak Nitrite promoters have been continuously increasing stake by 5% in the last few years and recently added 36 crore worth of equities
• The most interesting thesis building operationally is the revival of its key chemical spreads

• Many minority shareholders have lodged complaints against ACC with the SFC, since unfair privatization price damages the ecology of the entire market.It depends on whether the SFC will take action.
• The failure of privatization does not necessarily mean better returns for investors. On the contrary, it may result in greater losses. ACC can have other ways “hollow out” the Company.
• Arbitrageurs can choose to bet on a second privatization (with higher Offer Price) and also on the potential dividends, but the prerequisite is that the management choose to “act honorably”.

• Manganese ore, alumina, molybdenum, and chrome ore prices are up, while cobalt prices are down due to market surplus
• Precious metals like gold are well placed and resilient, with potential for record industry profitability
• Copper is still the best way to play the acceleration in global electrification, with potential opportunities in zinc and bulk commodities as well

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• With Hanwha Corporation (000880 KS) trading around a one-year low NAV discount, the Hanwha Group has made a Tender Offer for 8% of shares outstanding at ₩30,000/share.
• Preceding my comments on Hanwha are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• US oil rig count stabilises at 479 as of the week ending on 5/July, after falling for five consecutive weeks.
• The US natural gas rig count rose by 4 to 101, yet it remains 34 rigs lower than the count from the same week last year
• Drilling activities in the US remain soft as upstream players prioritise shareholder returns over increasing output.

• ISM vs Commodity Prices The latest ISM Manufacturing data came in lower than expected. It almost seems like economic momentum in the US is fading.
• But on the other hand, commodities that are most sensitive to change in economic momentum, namely copper and crude oil, remain in a sideways consolidation or in the case of crude are already breaking out to new short-term highs.
• That price action behavior opens up a gap between both metrics, and one thing is clear.

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

• Energy Transfer LP reported robust financial results for the first quarter of 2024, generating an adjusted EBITDA of $3.9 billion, an increase from $3.4 billion in the same period of 2023.
• Distributable cash flow (DCF) attributable to partners was $2.4 billion, compared to $2 billion in the prior year, resulting in excess cash flow after distributions of $1.3 billion.
• The company announced a quarterly cash distribution of $0.3175 per common unit, up 3.3% from the previous year.

• Copper-Gold play Rex Minerals (RXM AU) has entered into a Scheme with MACH Australia.
• MACH, wholly-owned by Indonesia’s Salim Group, is offering A$0.47/share in cash, a 71% premium to last close and a decade-high.
• Rex shareholder approval and FIRB are the key conditions. Rex’s board is unanimously supportive. This Offer will tentatively complete late October.

• Copper rebounded last week, rising 4% on the LME and 6% on the COMEX, led by improved sentiment but in line with most of its commodity complex peers.
• Check out our initiation, Copper Primer: What We Like About Copper and What to Play, and our equity initiation, Southern Copper: In a League of Its Own. 
• We provide updates on the long copper-short gold trade we explored last week and the iron condor in Freeport Mcmoran (FCX US) 

• Following our piece, Fushan Energy (639 HK): Coking Coal Prices To Strengthen With Anglo Accident, we highlight Mongolian Mining (975 HK) as another play with growth potential. 
• With a market capitalization of 1.1 bn USD, it trades at 5.3x PE, trailing, and with the sale of 20% of its subsidiary KEX, it is net cash. 
• Potential catalysts include the payment of a first dividend once it has redeemed the perpetual notes and the commencement of its highly accretive gold project in 2025 in Mongolia. 

• Hanwha Energy, wholly owned by the Hanwha Group’s owning family, announced a tender offer for an 8% stake in Hanwha Corp at ₩30,000. The tender period is until July 24.
• Hanwha Energy will buy all shares if tendered less than planned, otherwise pro-rata. Payment in cash eliminates cancellation risk but poses allocation risk.
• Approximately 10-15% of shares are likely to be the potential ceiling for tendering, minimizing allocation risk for the 8% target. A widening spread of 2-3% could offer arbitrage opportunities.

• Anticipation of an extensive stimulus package at China’s Third Plenum, aimed at revitalizing the decelerating economy, is driving a rebound in iron ore prices.
• China’s iron ore imports have increased by 7% year-over-year despite a 3% decline in steel output, leading to a buildup in inventories on-shore. 
• The convergence of technical signals and seasonal trends in the SGX TSI Iron Ore Index suggests a bullish market stance, highlighting potential profit opportunities.

• Combined entity of Paladin Energy and Fission Uranium expected to command a market capitalisation of USD 3.5 billion.  
• Following the Russia-Ukraine war, uranium miners started looking for alternative sources in low-risk regions, putting focus on US and Canada.
• Post-Merger, Paladin will have the second-largest resource base of any listed uranium miner in the Western Hemisphere, second only to Cameco.  

• Recommendation to short shares of Scotts Miracle-Gro based on excessive leverage from Hawthorne hydroponics subsidiary’s cannabis market bet
• Core consumer lawn care business facing increased competition, pricing pressure, and challenges in driving volume growth
• Projected 40% downside for SMG due to precarious financial position and reliance on key retailers and seasonal revenue

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.

• The Sherwin-Williams Company recently reported its consolidated sales within the guided range, gross margin expansion, and growth in diluted earnings per share (EPS) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
• However, the results were at the lower end of expected sales.
• Despite the modest first quarter, the company remains confident in its full-year outlook and is optimistic about the upcoming painting season.

• NuVista Energy is a Canadian E&P company with operations in the Montney shale known for its high-quality locations
• The company generates revenue from both oil and natural gas, drilling around 40 wells per year out of a large inventory of 1,050 locations
• The Montney shale is viewed as an underrated play with a low breakeven point compared to other major North American shale basins, providing a significant amount of inventory with profitable drilling opportunities.

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.

• Sanil Electric (062040 KS), a Korean industrial transformer manufacturer, is seeking to raise up to US$165 million.
• We previously discussed the IPO in Sanil Electric IPO: The Bull Caseand Sanil Electric IPO: The Bear Case.
• We examine the syndicate’s valuation methodology. Our analysis suggests that Sanil is fully valued in the IPO price range. We would pass on the IPO.

• Iron ore has remained rangebound between 95 and 130 USD/ton for three years, with cost-curve support kicking in on the higher end of the cost curve at around 100 USD/ton. 
• Coking coal prices are expected to bounce due to the Anglo incident, and we believe the 65-62 spread will benefit, moving out of its mid-teens band. 
• We like iron condors (set up details in the insight) and high-grade ore producers Rio Tinto Ltd (RIO AU), Vale (VALE US).

• Alpha Metallurgical Resources recently disclosed its financial results for the first quarter of 2024, presenting mixed outcomes amidst challenging market conditions.
• The company announced an adjusted EBITDA of $190 million, a decline from the $266 million recorded in the previous quarter, citing the softening metallurgical coal market which deteriorated further after the quarter ended, setting a challenging environment for the upcoming quarter.
• Despite these complex market dynamics, Alpha Metallurgical Resources remains committed to maintaining operational excellence and cost-efficient practices.

• US crude oil inventory declined by 12.2 million barrels as of the week ending on 28/Jun, the biggest drawdown since July 2023.
• Henry Hub prices continued to decline from last week due to increased production and cooler weather forecasts.
• Saudi Aramco awarded over USD 25 billion in contracts for gas expansion. Goldman Sachs lowered its target price on Saudi Aramco but maintained its “Neutral” rating.

• Kinross Gold Corporation reported a financially robust first quarter for the year 2024, characterized by strong operational performance and strategic developmental advancements, despite the inherent challenges and complexities in the mining sector.
• During this quarter, Kinross Gold produced 527,000 ounces of gold, with its key operations at Tasiast, Paracau, and La Coipa contributing significantly to the output, demonstrating cost-effective production with an All-In Sustaining Cost (ASIC) below $1,000 per ounce.
• The favorable gold prices provided a financial tailwind, enhancing the company’s profitability margins.

Nanoco Group’s trading update flagged that, while its development work on second-generation materials continues to progress as expected, it does not expect to receive a follow-on order for commercial materials in FY24. These orders were expected to be low volume, hence the delay is not particularly material from a financial perspective, although it does remove an expected milestone to gauge Nanoco’s pathway to volume production. We have adjusted our estimates to reflect a more cautious scenario for the near-term ramp-up of volume material sales. Success will be defined by the extent to which Nanoco-based sensors are designed into handsets and other devices in the 2026/27 timeframe, when the infrared sensing market is expected to see an inflection. Nanoco and its lead partner hope to have more visibility on end-customers’ commercialisation pipelines by the time of the FY24 results in October.

• ICL recently shared financial results for the first quarter of 2024, marking a period of adaptation and resilience amidst enduring operational challenges, particularly due to the geopolitical situation in Israel.
• This quarter demonstrated a mixed financial performance, showcasing both progress and areas needing attention.
• ICL reported a total revenue of $1.735 billion for the quarter, which, while representing a sequential improvement of 3%, is lower compared to the same period in the previous year.

• Sonoco, a diversified global packaging company, displayed stable financial performance in its first quarter of 2024.
• With revenues hitting $1.6 billion and adjusted earnings per share at $1.12, the company’s resilience in managing operating costs and capital was transparent.
• A particularly strong note was the reported operating cash flow of $166 million, supported by effective working capital management.

• West Fraser presented its Q1 2024 financial performance, revealing mixed business outcomes and a nuanced path forward amidst shifting market dynamics.
• The company reported an adjusted EBITDA of $200 million with a 12% margin, demonstrating stable financial health, despite sectoral challenges.
• This performance marks a considerable improvement over the previous fiscal year’s EBITDA, largely buoyed by strategic acquisitions and capital investments that have enhanced operational efficacy and market reach.

• Shougang Fushan Resources (639 HK) is a play on strengthening coking coal prices with downside protection due to its net cash reserves of 1.1 bn USD (Vs. Mkt Cap 2.1).
• At the lower end of the cost curve, its EBITDA margins have averaged 54% (last 16 years), with its lowest EBITDA number of 19% in FY15.
• With an 80% payout, the company trades at a trailing yield of 9% (the average spot price assumed is 1900 RMB/ton).

• NewMarket Corporation reported a solid performance in the first quarter of 2024, with notable developments in financial results and strategic actions aimed at expanding its business operations.
• The company reported a net income of $108 million or $11.23 per share, reflecting an increase from $98 million or $10.09 per share in the same period the previous year.
• The primary revenue generator, the petroleum additives segment, demonstrated a robust operating profit of $151 million up from $132 million in the first quarter of 2023, though it experienced a slight decline in sales from $700 million in the previous year to $677 million.

• Following back-to-back positive months and new all-time highs, gold closed down slightly in June, while the gold equities sold off more dramatically.
• Silver fell more sharply than gold (down 9%) following the strong outperformance in May (up 14%), and silver equities followed suit.
• Copper also dropped significantly in June, down 9% to $4.4/lb while the copper equities outperformed the metal slightly, down 7%.

• Axalta Coating Systems reported a stable set of results for the first quarter of 2024.
• The company demonstrated resilience through flat year-over-year net sales and a significant increase in Adjusted EBITDA, which was reported as a record for any first quarter in the history of Axalta Coating Systems.
• The margins have shown a notable improvement, providing optimism for further growth potential.

• Element Solutions Inc reported a positive start to 2024 with its Q1 results reflecting a mixed macroeconomic environment.
• The company saw a modest organic sales growth of 1% year-over year, while the constant currency adjusted EBITDA grew by a robust 17%, demonstrating substantial margin expansion.
• The Electronics segment appeared resilient, benefiting notably from recovery in high-margin semiconductor and circuitry businesses in Asia.

• Valvoline’s performance in the second quarter of fiscal 2024 demonstrates robust growth and operational efficiency.
• The company showed an impressive growth trajectory with system-wide store sales increasing by 13% to $746 million.
• The expansion was complemented by a significant rise in profitability, evidenced by a 21% increase in adjusted EBITDA to $105 million and a notable jump in adjusted earnings per share (EPS), which increased over 60% to $0.37 per share.

• 23,000 MT Capacity expansion would double the current capacity to 49,000 MT  
• INR 65 crores of Fund Raise would help increase the bottom line
• Backward integration of waste converted into raw material, ensuring economies of scale

• Aptar, a global leader in drug delivery systems and consumer product dispensing, has reported robust first quarter financial results for 2024.
• The company disclosed a 5% core sales growth and a remarkable more than 30% increase in adjusted earnings per share (EPS) as compared to the previous year.
• Notably, the Pharma segment exhibited strong performance driven by sustained demand for its proprietary drug delivery systems, marking high single-digit core sales growth.

• As we conclude Q2/24, we are excited to release our inaugural quarterly recap report to update our readers on all the research content we have published in the last three months.
• This period has been marked by dynamic performance across various sectors, with notable highlights in the companies we cover.
• The best performers from our coverage universe include, ADF Group (+74%), Trigon Metals (+39%), BQE Water (+29%), and Dynacor Group (+12%).

• Graphic Packaging Holding Company’s performance in the first quarter of 2024 presents a mixed picture.
• Despite challenging market conditions, the company demonstrated resilience, attributed to its diversified portfolio and strategic initiatives, which may hold implications for stakeholders considering investment in the firm.
• On the revenue front, Graphic Packaging saw its sales reach $2.3 billion.

• The WTR Sustainable Index was down 0.7% W/W versus the S&P 500 Index (down 0.1%), the Russell 2000 Index (up 1.3%), and the Nasdaq Index (down 0.1%).
• Energy Technology (14.2% of the index) was down by 2.7%, while Industrial Climate and Ag Technology (60.5% of the index) was down 0.4%, ClimateTech Mining was down 6.2%, and Advanced Transportation Solutions (19.7% of index) was down 0.2%.
• Top 10 Performers: HLGN, OPTT, EOSE, ARVL, LTBR, NVVE, EGT, ENVX, FFIE, LICY

• Seismic industry is overlooked and misunderstood by many investors due to its volatility
• Recent changes in the industry could lead to growth opportunities, including potential increased demand in 2024
• Author is optimistic about TGS NO equity as a potential investment, despite previous reservations about company’s high quality and valuation

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.

• ORG purchased 27% of CPMC’s shares at HK$6/share in 2015.After about eight years, Baosteel’s Offer Price was only HK$6.87/share. The annualized return rate was low, which obviously cannot satisfy ORG.
• Baosteel and CPMC have been in talks for a long time – There may have been some “tacit agreement” between the two parties. The approval process is smooth so far.
• For acquisitions/consolidation between SOEs, private enterprises usually have limited chances of winning.ORG has financial pressure and the approval process face uncertainties. There would be more negotiations among CPMC, ORG, Baosteel.

• Occidental trades at higher PE and PB valuations than Exxon Mobil, Chevron, Shell, TotalEnergies, and BP. European oil majors are cheaper than American peers.  
• Occidental has been the Permian Basin’s leading oil and gas producer for the past five years. 
• Occidental expects to close the USD 12 billion CrownRock acquisition by August. The deal is anticipated to boost its oil output by 170k bpd. 

• Sanil Electric (062040 KS), a Korean industrial transformer manufacturer, is seeking to raise up to US$165 million.
• In Sanil Electric IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on rapidly slowing growth, high customer concentration, mid-tier revenue growth and mid-tier FCF margin compared to peers.

• Discounts to NAV of covered holdcos didn’t follow a clear trend during June. Discounts to NAV: C.F.Alba, 44.5% (vs. 46.8%); GBL, 43.6% (vs. 42.9%); Heineken Holding, 18.4% (vs. 18.3%); 
• Industrivärden C, 2.4% (vs. 2.5%); Investor B, 9.9% (vs. 12%); Porsche Automobile Holding, 35.8% (vs. 35.3%). Rio DLC spread tightened to 20.7% (vs. 23%).
• What seems interesting: Porsche SE vs. listed assets and the Rio DLC (long RIO LN/short RIO AU).

Edison Investment Research is terminating coverage on Oxford Cannabinoid Technologies (OCTP), Britvic (BVIC), Ultimovacs (ULTI), DFR Gold (DFR), The Merchants Trust (MRCH), PB Holding (PBH) and Biodexa Pharmaceuticals (BDRX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our website.

• Seadrill is a $3.4 billion offshore drilling company headquartered in Houston, TX.
• The company is expected to generate significant EBITDA and free cash flow in 2023.
• Seadrill has a net cash position and is in a strong strategic position compared to its competitors, potentially yielding a return of 175-200% within the next two years.

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.