Energy & Materials Sector

• Marathon Oil delivered a mixed set of results for the previous quarter, with revenues below the analyst consensus.
• The company reported a strong adjusted free cash flow of $531 million and returned $434 million to shareholders, marking a 10% increase in distributions compared to the previous quarter.
• In the third quarter, Marathon Oil’s management team expects total company oil and oil equivalent production to either meet or surpass the upper limit of its annual guidance range.

• Occidental Petroleum delivered a disappointing set of results as the company could not meet Wall Street’s revenue and earnings expectations.
• The company’s adjusted profit of $0.68 per diluted share slightly exceeded the reported profit of $0.63.
• Despite planned maintenance activities across their oil and gas businesses, the company generated over $1 billion of free cash flow for working capital.

• CF Industries Holdings delivered mixed results for the previous quarter, with revenues well below analyst expectations but managed an earnings beat.
• The company’s ability to generate adjusted EBITDA of over $1.7 billion in the first half 2023 reflected strong demand dynamics.
• CF Industries exceeded sales expectations, selling more products than it produced, resulting in low inventories at the end of the first half.

• The Mosaic Company delivered mixed results for the previous quarter, with revenues above the analyst consensus.
• Global crop demand is very high, and supply finds it difficult to match up where fundamentals are still favorable.
• Furthermore, in Palmeirante, Mosaic is developing one million-tonne blending and distribution facility for its Mosaic Fertilizantes company.

• Phillips 66 delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• The last quarter was marked by strong operational performance and strategic execution, evident in its adjusted earnings of $1.8 billion.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• In the inaugural constituent selection, FnGuide revealed a noteworthy pattern. Given the smaller market capitalization of the electrolyte suppliers, FnGuide has included only the largest among them in this ETF.
• SoulBrain, categorized by FnGuide as an electrolyte supplier like Chunbo, has significantly outperformed Chunbo. As a result, there is a considerable likelihood that SoulBrain will replace Chunbo in December.
• The price impact from ETF rebalancing trading has disappeared substantially in Korea. We should focus on the first rebalancing of newly listed ETFs that haven’t yet established a learning effect.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Softbank Group
2. China Hongqiao
3. China Jinmao Holdings
4. Geely Auto
5. First Pacific Co

and more…

• Devon Energy Corporation delivered a mixed result in the quarter, with revenues above expectations, but the company failed to surpass the analyst consensus regarding earnings.
• In terms of production, the company managed to increase oil volumes by 8% year over year this past quarter.
• By averaging 323,000 barrels per day in the quarter, this outcome beat midpoint forecast estimates and created a new all-time high oil production high for the corporation.

Alkane Resource’s FY23 financial results were broadly in line with our forecasts, with profit after tax totalling A$42.5m (compared to our forecast of A$44.0m) and EPS of 7.10c (cf 7.38c). Cash flows from operations exceeded our forecasts (A$95.5m cf A$75.6m) as a result of an increase in deferred tax liabilities, albeit this was balanced by higher exploration capex of A$58.1m to result in a net cash flow of A$4.1m (cf A$2.4m). Following FY23 production of 70,253oz at an all-in sustaining cost (AISC) of A$1,602/oz, FY24 guidance for Tomingley is 60,000–65,000oz at an AISC of A$1,750–2,100/oz. Our forecasts remain largely unchanged in the aftermath of Alkane’s FY23 results. We maintain our valuation.

• Trigon announced initial production results from its first copper concentrate.
• The newly commissioned mill produced a concentrate grade of 33.5% copper (well above the 20% expected) at 79.5% recoveries.
• Underground Fleet On August 21st, TM announced its $8.9M order to purchase underground mining equipment from Epiroc.

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.

• Indika Energy

• RPPL reported a weak Q1FY24 due to correction in raw material prices that led to inventory losses and decline in EBITDA margin to 12% vs 14%+ QoQ and 16% YoY.
• Given that Q1 tends to be a high demand quarter, RPPL had kept high inventory, which further accentuated the inventory losses.
• The raw material prices have stabilized now. EBITDA per kg should stabilize back to around INR 34-35 and should help the EBITDA to grow in line with the volume growth. 

• In this insight, we take a look at the potential index changes for F100 and F250 in the run up to the September 2023 Rebalance.
• I expect four changes for F100 and seven changes for F250 based on the latest available data.
• However, with five more trading days left for the base date and with many names lurking close to the border, the rankings can still change.

• Cleveland-Cliffs is becoming too aggressive in its consolidation goals, says author.
• Cliffs continues to underperform its peers, I outline some important red flags associated with the company’s acquisition spree. I remain sceptical that a deal for U.S.
• Steel would be beneficial for shareholders.

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.

• Adaro Energy

• Short call with Head of IR of Siemens Energy provides more confidence in the equity story, but not much will happen until Q4
• New processes are being put in place: an external partner (external validation and support by renowned company), a dedicated task force, and Ernst & Young (as the main auditor).
• Looking at the other divisions, momentum for Gas Services, Grid Technologies, and Transformation of Industries remain strong

• Support levels discussed in our 8/8/23 Compass broke, leading to a change in character (from buy the dup to sell the rip) and a deeper pullback.
• Supports we were watching included the 50-day MA and 4460-4475 on the S&P 500, $371.50 on $QQQ, and $190-193 on the $IWM; these are now resistance moving forward
• Longer-Term support on the S&P 500 is at 4300-4325 (nearly hit on Friday) and 4200, and we will remain constructive as long as these supports hold.

• The changes for the next rebalance will use closing prices from 31 August, will be announced after the close on 8 September with implementation at the close on 15 September.
• One stock is very close to the 85% cumulative market cap inclusion threshold, while there are two stocks that are near the 98% cumulative market cap deletion threshold.
• With one inclusion and capping changes, estimated one-way turnover at the rebalance will be 3.5% resulting in a one-way trade of US$20m. That could change over the next week.

• Today’s results highlight the strong continuity of high-grade along the Wenot Shear and the Company’s ability to efficiently fill wide gaps in zones which will be important for the upcoming resource update.
• The Company has completed 14 drill holes, totalling 5,235m.
• This morning, Omai Gold Mines Corp. (OMG:TSXV, OMGGF:OTC) announced additional drill results from the Omai gold project in Guyana.

WCC’s H1/23 results were softer than expected, as the company reported lower sales volumes and larger-than-expected ASP declines across its plants in Mainland China. In particular, sales volumes and ASP in the company’s stronghold of Shaanxi fell 4% and 16% y-o-y, respectively. Positively, WCC’s expansion in Africa has been progressing well, with overseas operations now accounting for 27% of revenue. The company’s plants in Africa enjoy substantially higher margins than those in China.

In our view, the key risk for WCC is uncertainty regarding the extent of its African expansion, with the company reportedly developing another USD 100 mn cement plant in Rwanda. We believe further expansion into Africa will fundamentally change WCC’s risk profile.

 We move our recommendation on the WESCHI 4.95 26 to “Buy” from “Hold”.

• SDRL reporting second quarter results provided greater insight on the contribution of Aquadrill to SDRL’s financials and sets the course for how the business could benefit from current day rates
• SDRL has two drill ships set for contract expiration at year end and another two more vessels expected off contract by end of 2024, not including those with contract options
• Our new price target of $62 from $50 values SDRL in line with its peers even though SDRL is not levered

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.

• PT Pertamina (Persero)
• Softbank Group

• Albemarle Corporation delivered a positive result and managed an all-around beat in the last quarter, with net sales and EBITDA up compared to last year.
• Based on the costs on the market at the time, their team has raised their energy storage projection for 2023.
• We give Albemarle Corporation a ‘Buy’ rating with a revised target price.

• Orange juice futures hit an all-time high last week as citrus crops all across the US have been hammered by a series of hurricanes and the spread of citrus greening, an incurable disease spread by insects.
• The vast majority of oranges produced in the US come from Florida, which has been hobbled by hurricanes and a cold snap, massively hampering supply.
• Such headwinds are responsible for the supply shortage in oranges, which has driven up prices that will eventually filter through to consumers.

• FMC Corporation delivered a disappointing set of results as the company could not meet the revenue and earnings expectations of Wall Street.
• The company presented several challenges, including FX headwinds, lower EBITDA margin, higher interest expenses, and a decline in free cash flow due to the impact of a channel inventory reset.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

On 7 August, Pan African Resources (PAF) announced FY23 production of 175,209oz, which was within 0.1% of its guidance of 175,000oz on 26 May. It also indicated all-in sustaining costs (AISC) of US$1,325–1,350/oz (at ZAR17.77/US$), reiterated output guidance of 178–190koz for FY24 and reported net senior debt of US$18.9m as at end-June (cf US$49.9m as at end-H123). In response to the announcement, we have reduced our FY23 normalised HEPS forecast for PAF by 8.3%, from 3.82c/share to 3.50c/share to reflect dollar costs, which were stickier at higher levels than we had hoped. However, our forecast remains above the market consensus. Moreover, our life-of-mine valuation of the company remains almost completely unchanged at 34.24c/share (see Exhibit 7 for full explanation), notwithstanding recent rand strength.

Tomingley delivered Q423 gold production of 15,822oz, meeting its quarterly forecasts at an AISC of A$2,174/oz. These results concluded a strong year, with full year production of 70,253oz at an AISC of A$1,602/oz beating original FY23 guidance of 55,000–60,000oz production (at an AISC of A$1,650–1,900/oz), and meeting April 2023 production guidance of 65,000–73,000oz (at an AISC of A$1,550–1,750/oz). Full year gold sales totalled 70,498oz, generating revenue of A$190.5m at an average price of A$2,703/oz. FY24 guidance has been set for Tomingley at 60,000–65,000oz production at an AISC of A$1,750–2,100/oz as Alkane anticipates increased costs in wages, and electricity, fuel and reagent prices. Following Alkane’s updates since our last note in April, we have increased our FY23 EPS estimate by 26.8% to 7.38c (cf 5.82c previously).

• Global equities under pressure; we discussed in our August 3,2023 Int’l Compass how it could be the start of a ~15% pullback in $ACWI, which would put it at $84-$85.
• We also discussed how it is possible that this is a normal 3%-6% pullback to the major $93 support level (which it tested today).
• If the 10-year Treasury yield and DXY remain below their respective resistance levels, we remain buyers on this pullback to $93 on ACWI-US.

Canacol Energy released its 2022 ESG Report on 9 August. It highlights the company’s desire for a 50% reduction in Scope 1 and 2 emissions by 2035, to achieve carbon neutrality by 2050 and to have no methane emissions by 2026. This reflects Canacol Energy’s position as a top decile upstream performer in the S&P Global Corporate Sustainability Assessment.

• In January 2023, NAVF and Michael 1925 LLC – affiliates of Dalton Investments LLC – announced a hostile partial Tender Offer for T&K Toka Co Ltd (4636 JP). 
• It failed. They wanted to buy 21.72% at ¥1300 to get to 44% post-Tender. The Company objected. Dalton/etc didn’t get the shares. Shares fell afterward. 
• Today, Bain announced a deal to take over the company at ¥1,400/share. T&K TOKA has agreed. It may not be as easy as that. And there is a fulcrum investor.

• T&K Toka Co Ltd (4636 JP) has recommended Bain’s pre-conditional tender offer of JPY1,400 per share, a 32.0% premium to the undisturbed price.
• The pre-conditions relate to China TOB treatment measures (T&K Toka sell downs its Hangzhou Toka Ink stake to hold less than 30%) and various country approvals (Japan and Serbia).
• The offer will open in early January 2024. The minimum acceptance condition requires a 39.2% minority acceptance rate (50.3% excluding Nippon Active), which is doable due to a reasonable offer.

• DDH1 (DDH AU)‘s IE considers Perenti Global (PRN AU)’s A$0.1238 cash plus 0.7111 PRN shares for each DDH share offer fair and reasonable. 
• The offer requires DDH1 shareholder approval. Shareholders representing 38.0% of outstanding shares will vote in favour of the scheme.
• The low spread points to a done deal. At the last close price and for the 6 October payment, the gross and annualised spread is 1.5% and 10.8%, respectively.

• Back on the 26 June, specialty mining driller DDH1 (DDH AU)announced a merger, by way of a Scheme, with Perenti Global (PRN AU).
• Under the agreement, DDH1 shareholders would receive for each DDH1 share held $0.1238 cash plus 0.7111 Perenti shares, for an implied value of A$1.01/share, or a 17.4% premium.
• I thought the terms were fair. The Independent Expert has now concluded the same. Shareholders will have their say at the Scheme Meeting on the 18 September. 

• State Gas Limited (ASX:GAS) is a junior energy producer and explorer with assets concentrated in the Bowen Basin, Queensland.
• Having secured a capital injection through a recent equity placement, the company is set to make the transition from explorer to producer with the imminent start-up of the Rolleston West CNG Project.
• Although only a small-scale start-up, first gas is always a critical event driver in demonstrating the commercial potential of the assets and providing a platform from which growth strategies can emanate. 

• Santaco’s taxi strike and ancillary unrest might spark another systemic event in South Africa ahead of its 2024 elections.
• However, commodity price risk remains amid an uncertain interest rate outlook.
• We lower our valuation of Sibanye’s ADRs to $6.29 per share and maintain our neutral outlook.

• We forecast 26 changes across the ASX50 Index, ASX100 Index, S&P/ASX 200 (AS51 INDEX) and ASX300 Index at the September rebalance.
• The review period ends tomorrow, so most changes are high probability. Though there are some changes that will be up to the discretion of the index committee.
• There will be a lot of stock to trade on the changes to the ASX200 and indices higher up the hierarchy. But there will be a lot of pre-positioning too.

• Indo Tambangraya Megah (ITMG IJ) provides investors with fat dividends. We estimate from 2021-2023e, the company will have paid over 20,000 Rph (70% of the current share price) in dividends.
• Despite these dividend payouts, cash on the balance sheet by the end of FY23e will easily exceed one bn USD or about 50% of the market capitalization.
• Weak results/degrowth are expected due to unsustainably high coal prices in 2022. Nevertheless, there is a good case for future value as hefty dividends will continue to be paid.

Continuum Green Energy has launched a roadshow to market USD 144A/RegS 3.5NC1.5 green bonds. The expected size is USD 450 mn. The proceeds are earmarked for: [1] refinancing the issuer’s outstanding USD 400 mn 2026 notes; [2] paying the first coupon of the proposed notes and transaction costs: and [3] capex for eligible green projects. The expected ratings on the notes and issuer are B+ (positive) by S&P and Fitch.

We view Continuum as “Medium Risk” on our LARA Scale. We like the company’s: [1] high exposure in healthier commercial & industrial customers with almost no receivables; [2] diversified customer portfolio; and [3] long-term PPA being benchmarked to various industrial tariffs. On the flip side, the credit is constrained by higher leverage compared to peers and has smaller scale. Our Credit Bias is “Positive”, considering the 1 GW of new capacity scheduled to be commissioned later this calendar year.

We believe the COGREN 27 should be priced to yield c. 8.5-8.75%.

• In 3Q23, Electrovaya achieved revenue of $10.5 million, a 160% Y/Y increase from $4.1 million in 3Q22.

• The increase in revenue was due to increased order volume and a ramp-up in production to meet demand.

• Guidance of $42 million for the year has been reiterated.

The proposed equity issue and additional resources will largely complete the funding requirement for The Metals Company’s (TMC’s) further environmental study and completion of its mining application, which it intends to file in July 2024. While the regulatory delays in the International Seabed Authority’s (ISA’s) implementation of the mining exploitation code were disappointing, momentum behind the legislative process remains positive and the stepping stones towards TMC’s production of battery metals from the deep sea are steadily falling into place.

We view Yankuang as “Low Risk” on the LARA scale. This reflects: [1] the company’s huge scale (producing over 100 mn tons a year) and status as the second-largest producer in the Chinese coal sector; and [2] that it is majority owned by, and has strategic importance to, the Shandong government. These translate to strong access to onshore capital. Our assessment also takes into account Yankuang’s: [1] earnings being dependent on coal price fluctuations; [2] improving financial profile; [3] exposure to adverse movements of the USD against the CNY; and [4] track record of operation.

Our fundamental Credit Bias on Yankuang is “Positive”, due to: [1] the company’s enhanced SOE status following the completion of the Yanzhou Coal/Shandong Energy merger; and [2] supportive coal prices.

Controversies are “Immaterial”, but the ESG Impact on Credit is “Moderately Negative”. The coal mining industry in China is exposed to regulatory and geopolitical risks, such as forced closures of inefficient mines. The industry also faces extreme scrutiny from environmental agencies, given its negative impact on the environment.

Wheaton’s Q223 results exceeded our expectations. Production of gold equivalent ounces (GEOs) was 4.6% higher than our prior forecasts, while sales of GEOs were 6.9% higher, driving a positive variance in revenue of 6.6%, or US$16.4m. This was partially offset by costs but nevertheless resulted in a US$7.8m (or 5.4%) positive variance in earnings from operations that, to all intents and purposes, dropped through to the bottom line.

• Exxon Mobil delivered a mixed result in the recent quarter, with revenues above market expectations but failed to surpass the analyst consensus regarding earnings.
• The company reported nearly $8 billion in earnings, twice the amount earned in the same quarter three years ago under comparable industry conditions.
• Exxon Mobil also achieved significant production rates in the Permian and Guyana regions, demonstrating progress in meeting global energy needs while reducing emissions.

• The Williams Companies delivered mixed results for the previous quarter, with revenues below the analyst consensus.
• Starting with adjusted, the company experienced another solid quarterly growth, which aligns with a 5-year CAGR of 8.6% for the same metric.
• The company’s adjusted EPS for the second quarter also increased, continuing the long history of robust EPS growth, with year-to-date EPS currently up by 23%.

• TotalEnergies’ results were a major disappointment as the company failed to meet the revenue expectations as well as the earnings expectations of Wall Street.
• The company produced a healthy cash flow during the second quarter.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Ionic Tech begins REO recycled magnet production at Belfast facility; 
• IXR’s flagshipMakuutu Rare Earths project is significant given its ionic adsorption clayhostedgeology
• In Sep22 IXR received a £1.72m grant from the UK government todevelop its demonstration magnet recycling plant in Belfast, UK.

Pan American Silver (PAAS) reported its first quarterly results that include the assets acquired as part of the Yamana transaction, with Q2 revenues and adjusted EBITDA of US$640m and US$218m, an improved margin of 34%. Despite somewhat weaker than expected numbers, PAAS maintained its operational and cost guidance for FY23, which points to a visible improvement in performance in H2. Escobal continues to advance through the ILO 169 consultation process, with completion of Phase 2 expected by the authorities in October. We have updated our financial estimates and revised our valuation, which now stands at US$22.2 per share.