Energy & Materials Sector

• Origin Energy (ORG AU)‘s Scheme vote today was always going to be a tenuous affair with AusSuper’s ~17.5% blocking stake, and Perpetual also firmly in the “against” camp. 
• The Scheme meeting has now been adjourned. Origin said that based on the proxy votes, it was unlikely the Scheme would have achieved the required 75% approval by shareholders.
• In addition, the Brookfield-led consortium has pitched a alternative non-binding and indicative proposal which Origin views as inferior to the existing Scheme, and has significant reservations as to its complexity.

• Origin Energy (ORG AU) has postponed its scheme meeting to 4 December after it received a non-binding indicative proposal from Brookfield/EIG to amend the current scheme.
• The Board admitted the current scheme was likely to be voted down if the meeting was held today. The alternative transaction structure will struggle to gain shareholder support.
• If Brookfield/EIG walks, the share price will fall, at least in the short term. We think a reasonable deal break price is A$7.40, an 11% downside to the last close.

• As the ex-dividend date in Korea has been before the dividend is determined, SSFs trade at a discount based on the anticipated dividend rather than adjusting dividend settlement proceeds explicitly.
• The current dividend arbitrage yield for the financial companies can be seen as reflecting the postponement of the ex-dividend date to the next year.
• We should pay attention to those with a significant dividend arbitrage yield but that did not amend their articles of incorporation earlier this year.

• Orecorp Ltd (ORR AU) has disclosed a revised offer from Silvercorp Metals (SVM US) at A$0.19 cash per share and 0.0967 SVM shares per ORR share.
• The revised offer was necessitated due to the decline in SVM shares. Since 7 August, the revised offer is, on average, 7.8% higher than the previous offer.
• Directors and irrevocables represent around 20% of voting rights. The revised offer should help the scheme get up. At the last close, the gross spread was 8.6%.

• Welcome to our weekly EIA watch paired with a few remarks on the postponed OPEC meeting.
• We have had a look at OPEC production and export numbers, and it seems like production is much more price bullish than actual net exports (meaning a draw on local OPEC inventories)
• Interestingly, the US, Nigeria, Iran, UAE (among others) have managed to fill a lot of the production gap left open by left open by Saudi Arabia.

• Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come. 
• FUD and Flows would widen the spread. And they did.
• Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.

• JSR Corp (4185 JP)’s pre-conditional tender offer from JIC is conditional on several regulatory approvals, notably China SAMR approval. JIC can waive the conditions precedent.
• A takeaway from the Broadcom (AVGO US)/VMware Inc Class A (VMW US) SAMR clearance is that if JIC is willing to commit to restrictive conditions, SAMR approval can be obtained.
• On 6 November, JSR reiterated a late December tender start. However, with time fast running out, the likely scenario is SAMR conditional approval with a delayed tender start.

• Lakes Blue Energy NL (ASX:LKO) is a junior energy explorer with assets across southern and eastern Australia (and PNG).
• Having secured a farm-in deal, the company is set to return to exploration with the high-graded Enterprise North prospect set for drilling in H2 2024 subject to securing the requisite regulatory approvals.
• The success case of Enterprise North can also add material look-through upside to other Victorian opportunities. 

• We do not expect any constituent changes for the following indices: Top 40, Top 40 SWIX, FINI, FINDI or INDI.
• HAR is expected to enter the RESI and AMS is expected to fall out.
• After much anticipation, ANG’s indicative free float came in at 75%, 21.9 percentage points lower than the current SWIX float of 96.8%.

HELLENiQ ENERGY is a leading southern European refiner. Management is in the middle of a transformation programme that has seen the corporate structure streamlined. The group is now embarking on decarbonising the business and building up its renewable energy business, which will lead to it being better positioned for the future.

On 15 November, Wheaton Precious Metals acquired three streams from Ivanhoe’s Platreef project in South Africa, BMC Minerals’ Kudz Ze Kayah project in the Yukon and Dalradian’s Curraghinalt project in Northern Ireland. In summary, the streams allow for varying purchases of precious metals by Wheaton at varying prices and we calculate that the trio will add an initial c 26.3koz of gold equivalent ounces (GEOs) to WPM’s production profile from FY25, rising to c 35.4koz GEOs when all three are in production from FY27 (Edison assumption).

• The Origin Energy (ORG AU) scheme vote is on 23 November. Brookfield/EIG’s best and final offer is A$6.59 and US$1.86 per share, currently worth A$9.45.
• With AusSuper reportedly increasing its stake past 17% on Friday, the scheme vote remains too close to call. Brookfield/EIG will need a large YES vote turnout for a successful vote.
• If the scheme is voted down, there are mainly three Plan Bs – Brookfield/EIG’s alternate transaction structure, Board-initiated strategic review or maintaining the status quo.

• Shenzhen Senior Technology-A (300568 CH) is looking to raise around US$275m in its upcoming Switzerland GDR listing. The bookrunner on the deal is Huatai International.
• As per media reports, the firm was earlier looking to raise between US$300-400m via a Swiss GDR issuance, having secured approval earlier to sell up to 128m A-shares.
• However, given its lackluster share price performance over the past year, the eventual deal size would be capped at around US$275m.

• GEVO completed the previously announced expansion of renewable natural gas to 400,000 MMBtu from 355,000 MMBtu.
• On the Verity front, an agreement was signed with a third ethanol producer customer in the US Southwest, taking total planned volume of ethanol tracked to more than 300 million gallons per year or 2% of the US ethanol market.
• Additionally, GEVO also signed, finalized, and executed the previously announced US Department of Agriculture (USDA) grant of up to $30 million for the Climate-Smart Farm-to-Flight Program.

• W&T implemented a $0.01 per share quarterly dividend that will be paid on December 22, 2023, to shareholders of record on November 28, 2023.
• The dividend reflects management’s focus on generating free cash flow from the asset base that is available for reinvestment, debt reduction, and returns to shareholders.
• The annualized yield is currently 1.1%.

• Karoon Energy Ltd (KAR AU) seeks to raise approximately A$170m (US$110m) through its primary placement.
• The deal is a large one to digest at 28.5 days of three month ADV and 14.1% of current mcap. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Nippon Paint Holdings (4612 JP) announced a better-than-expected 3Q23 results this week, mainly driven by a resilient China decorative paint business. 
• The company also raised 2023 operating profit guidance, expecting around 6% higher operating profit (Y168bn from Y158bn previously).
• At 21x forward PE, the company is attractively valued given the growth profile and strong market share position in most end-markets. 

• Welcome back to our weekly EIA report, where we run through demand and supply data and give our cents on where we are heading next – and what the implications are for energy markets.
• As always we present the main conclusions up-front: 1) Oil demand will likely come in hot in November on the back of strong gasoline demand in October due to the lags in energy markets (Gasoline leads oil – not the other way around).
• 2) Gasoline numbers in September were likely just a data-glimpse, as no high-frequent data series seem to agree with the narrative that demand for fuel is dropping.

• Livent (LTHM US)‘s CEO recently said, regarding its merger with Allkem Ltd (AKE AU), that while falling lithium prices put pressure on marginal producers, the sector’s fundamental outlook remains strong. 
• And so, another week goes by, and another lithium Offer Down Under unfolds. 
• African-Focused lithium play Atlantic Lithium (A11 AU) announced this morning it has twice rejected Offers from South African-based Assore International, its major shareholder.  Shares spiked 43% on the news.

• Crack spread refers to the gross processing margin of refining (“cracking”) crude oil into its by-products.
• Crack spreads are affected by seasonality, supply, and inventory levels of crude and refined products, as well as demand for each refined product.
• A low-demand outlook for refined products of crude is prevalent due to expectations of an economic slowdown.

• EcoPro Materials (ECO123 KS) raised around US$320m, after downsizing the deal and pricing its IPO at the low end of the range at KRW36,200/share.
• 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 demand for the deal and other trading dynamics.

Nanoco’s announcement that it has fulfilled its first commercial order heralds the company’s transition from a development-stage company to a commercial supplier of quantum materials. The order provides support for our FY24 forecasts and is a key milestone on the company’s pathway towards becoming self-financing in FY25, with the potential to scale up significantly beyond that, if design wins in high-volume sensing applications can be secured.

• SSH Group (ASX:SSH) is a labour and equipment hire business operating predominantly in Western Australia with a focus on the key growth sectors of construction, resources, and energy.
• SSH listed in September 2021, issuing 31.25m shares at $0.20/share to raise $6.25m, along with the issue of 20.5m shares to the vendors of a labour-hire group of companies, Site Services.
• In May 2022, SSH acquired equipment hire group KMH for $15m or 3.9x FY21 EBITDA. 

• 3Q23 results showcase management’s focus. TMC reported 3Q23 results that included solid cost control as G&A expenses declined to $4.6 million and operating loss was reduced to $12.5 million for the quarter versus the $28.6 million loss in the year-ago period.
• Liquidity to cover operating and capital costs. With $22.5 million of cash on hand as of September 2023 and with the infusion of the $25 million in equity raise (inclusive of $9 million to be received by the end of 2023), in addition to the $25 million undrawn unsecured credit facility from Allseas, TMC has the liquidity and capital tools it needs to submit the provisional application to the ISA in 2H24.
• The company continues to work on securing more strategic funding to ensure sufficient liquidity to get into production once the exploitation application has been submitted.

Pan American’s Q3 results did not bring any major surprises at the group level, with lower EBITDA of US$159m, down 22% q-o-q, mainly a result of the continuing underperformance of La Colorada and lower-than-expected gold grades at El Penon. Yet the company reported flat (quarter-on-quarter) net operating cash flow of US$115m and broadly reiterated its FY23 operating guidance. We have revised downwards our near-term earnings estimates on the back of the results. However, our valuation has increased from US$22.0/share to US$22.7 due to updated longer-term gold price expectations. Although the shares have reacted negatively to the results, we expect a stronger Q4, while the commodity prices remain supportive against the backdrop of higher geopolitical risks.

Wheaton Precious Metals’ (WPM’s) Q323 profits exceeded our prior forecasts by US$4.0m (or 3.4%) at the pre-tax level and by US$4.2m (or 3.6%) at the post-tax level, driven by very strong production performances at Salobo and Constancia in particular. Production during the quarter amounted to 154,800oz gold equivalent ounces (GEOs) compared to our prior estimate of 151,919oz, as a consequence of which our FY23 production forecast remains within the company’s 600–660koz GEO guidance range, while our adjusted EPS forecast has changed by less than 1% (notwithstanding the cessation of lead and zinc concentrate production at Aljustrel until Q225).

• Based on the latest closing prices, the potential INs/OUTs are as follows. INs: Soulbrain & Enchem / OUTs: Chunbo & Solus Advanced Materials
• While the overall market liquidity constraints due to the short-selling ban could exacerbate the price impact on the rebalancing day, it may reduce the flexibility of our Long-Short setup strategies.
• While Chunbo carries single-stock futures, its liquidity may not be sufficient. So, a more creative Long-Short approach is required, taking into account these factors.

• 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 December 2023 Rebalance.
• There are only five more working days left in the 6-month reference period for the December 2023 rebalance event. 
• The expectations presented in this insight are my final expectations for December 2023.