Energy & Materials Sector

• Brookfield Asset Management/MidOcean Energy’s tilt for Origin Energy (ORG AU), faced two major hurdles. 
• The first was ACCC approval. Not just over competition issues, but also the perceived/apparent public benefit from Brookfield’s future commitment to renewable generation. ACCC has now cleared the transaction. 
• The second is currying favour with shareholders, several of whom, including AustralianSuper (13.68% stake), reckon the Offer is substantially below long-term value. This needs a bump.

• The ACCC has approved Brookfield/EIG’s proposed acquisition of Origin Energy (ORG AU). The Brookfield/EIG offer is A$5.78 and US$2.19 per share, worth A$8.83 at the last close. 
• The bidders now face the challenge of convincing shareholders to accept the offer and avoid incurring ticking fees. The scheme booklet will be despatched in the coming weeks.
• Several shareholders have justifiably argued that the offer is light. Our SoTP valuation is A$9.46 per share, 7.1% above the implied offer price of A$8.83.

• CMB and Frontline Ltd (FRO US) smoke the peace pipe: CMB will buy Frontline out of Euronav NV (EURN US) at $18.43/share (25% premium) and agree to Euronav selling 24 VLCCs to FRO.
• After an EGM gives the green light, CMB will launch a mandatory $18.43/share cash offer for Euronav. The three-way transaction is fairly priced (1.0x P/NAV) for all players, including the Euronav minorities.
• There shouldn’t be any antitrust issues. Spread is 4.02%/7.66% (gross/annualised assuming settlement by 30 April 2024). Recommendation is long and tender (there won’t be any squeeze-out).

• Packaging Corporation of America delivered a mixed set of results in its most recent results, with revenues falling short of Wall Street expectations but above-par earnings.
• Packaging Corporation reported a net income of $203 million in the second quarter.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• EcoPro Materials (ECO123 KS) is a leading player in the electrode material industry. It is seeking to raise up to US$500 million in a KRX IPO.  
• EcoPro Materials is offering 14.5 million shares at an IPO price range of KRW36,200-46,000 per share. Book building runs from 30 October to 3 November, with pricing on 7 November.  
• The bull case rests on attractive addressable markets, aggressive production capacity expansion, ambition to be the leading non-Chinese player, strong revenue growth and improving cash conversion cycle. 

• South32 is an Australian metal and mining firm spun off from BHP in 2015. Unlike mining majors, South32 holds smaller but concentrated assets.
• Aluminium operations is the firm’s primary revenue source followed by coking coal operations. Coking coal contributes to 32% of the underlying EBITDA.
• With its share price having got battered, South32 stock is compellingly priced relative to MVR ETF paving way for a compelling long-short trade.

• 2Q23 production was 19,961 bbl/d with the difference to our forecast mostly reflecting the timing of drilling.
• Wassana (1.6 mbbl/d production during 2Q23) was offline in 3Q23.
• Our YE24 estimated net cash (~US$450 mm given the late tax restructuring) represents 1.6x the current market cap of the company.

• This is a special one-time report on Dubai’s premier oil storage and service provider, Brooge Energy.
• This intriguing proposal has surprisingly not elicited a significant uptick in Brooge Energy’s stock price, a phenomenon that has left market watchers and potential investors curious and slightly bewildered.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

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.

• Hopson Development
• Lenovo
• Tata Steel Thailand
• West China Cement

• Liontown Resources (LTR AU) is trading near A$3/share, the level of Albemarle Corp (ALB US)‘s revised offer and where Hancock Prospecting has been buying recently. 
• With Hancock Prospecting accumulating a stake of nearly 17% over the last month, there will be a float reduction for Liontown Resources (LTR AU) in the next few months.
• Short interest has been increasing and the passive selling could provide an exit for the shorts. But Hancock Prospecting could also use the opportunity to buy more Liontown Resources stock.

• EcoPro Materials (ECO123 KS) is looking to raise up to US$500m in its Korean IPO.
• Ecopro Materials (EPM) manufactures and sells high-nickel precursors, one of the key materials for high-nickel cathode materials for secondary (rechargeable) batteries.
• In our previous note, we covered the company’s performance and undertook a peer comparison. In this note, we will share our thoughts on valuation.

• Has SK Innovation raised enough money for its longer term ambitions? 
• What is the stock pricing in that is not apparent on the balance sheet? 
• It seems really given their capex outlet, dilutive cap raising is the only solution

• Since being spun out from BHP in 2015, South32 Ltd (S32 AU) has doggedly addressed its vast asset portfolio. 
• This strategy has not been without issue, such as the US$1.3bn writedown in Hermosa base metals project (zinc, lead) earlier this year due to inflationary pressure from inputs (steel, cement).
• Not unlike other major miners, commodities tethered to the energy transition form a key cornerstone of South32’s forward objective, potentially leading to coal asset divestment and further copper (lithium?) acquisitions. 

• Barito Renewables (2306028D IJ) raised around US$200m in its Indonesian IPO, after pricing at the top end of its IPO range at IDR780/share.
• Barito Renewables (BR) is Indonesia’s largest geothermal power producer, and the third-largest globally by installed capacity, as per the firm.
• In our previous notes, we covered the company’s performance, had undertaken a peer comparison and shared our thoughts on valuation. In this note, we will talk about the trading dynamics.

• Calima Energy (CE1 AU); target price of A$0.45 per share: Operating update in Canada – The 3-well Pisces drilling programme has now been completed.
• 3Q23 production levels continue to be affected by weather related energy cuts and unforeseen work-overs.
• Valeura Energy (VLE CN)C; target price of C$6.40 per share: 3Q23 update – 3Q23 production was 19,961 boe/d.

Pan American Silver (PAAS) announced the temporary suspension of all operating activities at its La Colorada mine in Mexico due to security concerns at the mine site following the concentrate robbery. The company has not yet provided any indication of the potential restart of mining activities. We currently maintain our estimates and valuation, awaiting more clarity on the timing of the restart.

• KRX approved the listing of ACE POSCO Group Focus. This fund mirrors the performance of the FnGuide POSCO Group Focus Index. KRX will announce the listing date next week.
• This index encompasses 6 Posco affiliates and 4 non-Posco stocks. The top 3 constituents, each assigned a 25% weight, are POSCO Holdings, Posco International, and Posco Future M.
• We should explore various long-short setups for stocks within the local battery sector (long Posco affiliates and short others), starting with the listing of this ACE POSCO Group Focus ETF.

• • The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia are now back online.
• Each well is expected to reach 4,000 bbl/d gross production (8,000 bbl/d gross total, 2,400 bbl/d net to GeoPark).
• The total gross production of both wells could reach 9,000 bbl/d by YE23.

Medco Energi’s H1/23 results were acceptable in our view. The company’s earnings were soft, weighed down by lower O&G selling prices despite higher production volumes. That said, we expect Medco’s earnings to rebound in H2, considering the recent rally in oil prices. Positively, the company’s leverage and liquidity profile remain strong. We believe Medco will be able to accommodate its USD 400-800 mn acquisition in the Middle East without breaching the 2.5x net leverage target.

In addition, we note positively Amman Mineral Nusa Tenggara’s (AMMN) successful IPO in July 2023. We note that Medco’s 21% stake in AMMN is worth USD 6.1 bn (based on AMMN’s current market cap of c. USD 29 bn), which is far larger than Medco’s own market cap of USD 2.2 bn.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Vale’s ESG as “Adequate”, given its “Adequate” scores for all pillars. Controversies are “Material”, while Disclosure is “Strong”.

• Solaris Resources (SLS CN) yesterday announced it engaged Chinese investment bank CICC to help it with unsolicited M&A approaches.
• Solaris, Filo, Entree Resources, and Los Andes Copper are just four of the junior copper miners screening extremely well on M&A criteria. 
• Most copper supply/demand models forecast a large supply shortage of copper in the coming decade. Junior copper miners with large deposits will become increasingly valuable.

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.

• Vedanta Resources

• State Gas Limited (ASX:GAS) is a junior energy producer and explorer with assets concentrated in the Bowen Basin, Queensland.
• The company has released an update on the pre-construction phase of its proposed Rolleston West CNG Project in the Bowen Basin.
• Significant progress has been made with regulatory approvals on environmental and cultural heritage now received for all construction and pipeline areas; and final site surveys completed. 

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.

• Vedanta Resources

• EcoPro Materials (ECO123 KS) is looking to raise up to US$500m in its Korean IPO.
• Ecopro Materials (EPM) manufactures and sells high-nickel precursors, one of the key materials for high-nickel cathode materials for secondary (rechargeable) batteries.
• In our previous note, we covered the company’s performance. In this note, we will undertake a  peer comparison.

• Over the weekend I wrote about Kasumigaseki Capital (3498 JP)‘s move to TSE Prime and then move to TOPIX. I noted earnings would be out 3 October.  
• I talked about the possibility of a surprise. They had revised full-year to end-Sep to ¥2bn. They got ¥2.05bn. 
• But after growing revenue 79% last year, and growing net profit 101%, this year they expect revs +60% and Net Profit +144%. 

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

• What you need to know: • The precious metals markets were down in September, alongside a pullback across broader markets.
• Commodities and battery metals held in relatively flat.
• Sentiment Update Commodity prices remained relatively flat through the month of September, following another flat month in August.

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

• Corteva, Inc. delivered mixed results in the quarter, with revenues below Wall Street expectations but above-par earnings.
• Pioneer and Brevant achieved double-digit revenue growth in the United States.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• In this insight, we highlight the pricing gap divergences of the major Korean holdcos and opcos in 4Q 2023.
• Of the 38 pair trades, 18 of them involved holdcos outperforming opcos YTD and 20 of them involved opcos outperforming holdcos in the same period.
• We highlight 38 pair trades that involve Korean holdcos and opcos.

• The discounts to NAV of covered holdcos have generally tightened during September. Discounts to NAV: C.F.Alba, 49.2% (vs. 46.6%); GBL, 35.3% (vs. 36.2%); Heineken Holding, 14.5% (vs. 17.9%); 
• Industrivärden C, 7.4% (vs. 7.8%); Investor B, 15.4% (vs.  16.6%); Porsche Automobile Holding, 41.1% (vs. 41.5%). The spread of Rio DLC tightened to 15.8% (vs. 17.8%).
• What seems interesting: holding trades, Investor B vs. listed assets, Porsche SE/vs. listed assets and the Rio DLC: long RIO LN/short RIO AU.