Energy & Materials Sector

• SSE 50 and SSE180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on Shanghai Stock Exchange. 
• SSE 380 consists of 380 mid-cap stocks which are selected from the remaining Shanghai listed A-shares after the constituents of SSE 180 Index. 
• In this insight, we take a brief look at the index selection methodology and the historical price and volume performance of the SSE 50/180/380 index rebalance baskets.

• I tally 43 – 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 this week: Itochu Corp (8001 JP)‘s Tender Offer for Itochu Techno Solutions (4739 JP), and the Superloop Ltd (SLC AU) / Symbio Holdings (SYM AU) merger.
• Key updates took place forDali Foods Group (3799 HK), Allkem Ltd (AKE AU), and Oishi Group PCL (OISHI TB) 

• Martin Marietta Materials delivered an all-around beat in the most recent quarterly results.
• Martin Marietta achieved robust results across many areas, which includes an increase in consolidated total revenues, consolidated gross profit, adjusted EBITDA, and aggregates gross profit.
• We give Martin Marietta Materials a ‘Hold’ rating with a revised target price.

• Valero Energy Corporation delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• The refineries of Valero ran well with the throughput capacity utilization because refinery margins were supported by continuous demand balances and tight product supply.
• We give Valero Energy Corporation a ‘Hold’ rating with a revised target price.

• TPL captured more water business in the second quarter than the Company had previously achieved leading to revenue and earnings exceeding our expectations
• The water business has been a revenue source smoothing out the volatility associated with the movement in oil and gas prices and production levels
• While TPL is not expecting to repeat second quarter levels in the third quarter, the water business should continue to perform better than previously expected

Agnico Eagle Mines (AEM) reported record quarterly gold production of 873koz in Q223 at a US$840/oz total cash cost and a US$1,150/oz all-in sustaining cost (AISC) that drove strong financial results of adjusted EPS of US$0.65/share and operating cash flow of US$1.46/share. Record-breaking production reflects 100% ownership for the full quarter of Canadian Malartic, which will add c 80–90koz in attributable production per quarter. Additionally, AEM recorded the safest half-year performance in its history. Guidance for FY23 has been reiterated at 3.24–3.44Moz at a cash cost of US$840–890/oz and AISC of US$1,140–1,190/oz. The quarterly dividend remains at US$0.40/share.

Canacol Energy issued an operational update on 3 August that included gas sales and drilling plans. July 2023 gas sales were 197mmcf/day, in line with sales a year earlier. However, perhaps more importantly, the group is mobilising two additional rigs to increase production capacity to meet potential higher demand due to the emerging El Niño effect.

• Back in 2018, mini-exploration mining play – rare earths, gold, and base metals –  Indiana Resources (IDA AU) had its Tanzanian retention licence revoked. With no compensation.
• Indiana pursued its claim through the World Bank-backed ICSID’s tribunal, which subsequently ordered the Tanzanian government to pay US$109.5mn in damages and costs, versus Indiana’s current market cap of US$21mn.
• Not surprisingly, the Tanzanian government is pushing back on the claim. The question is whether Indiana will ever get paid. And Indiana’s not the only company seeking revocation retribution.

• JEV announced its first boiler sales order which will support a district heating system of a prominent university.
• This morning, Jericho Energy Ventures Inc. (JEV:TSXV, OTC:JROOF) announced that it has signed its first boiler sales order with a prominent Western University to support its district heating system.
• Additionally, last week, JEV announced a collaboration with a leading alcoholic beverage company to conduct a study using the DCC boiler.

• EDG reported assay results for four drill holes at the Eagle Zone, intersecting high-grade mineralization to a downhole depth of 284m, extending the down-dip plunge by ~180m.
• This morning, Endurance Gold Corporation (EDG:TSXV) provided an update on the ongoing exploration program at its Reliance Gold Project and assay results for four of the deepest holes drilled to date in the Eagle Zone.
• The assays summarized in Table 1, are from the first four holes drilled to test the downdip extensions of mineralization at the Eagle Zone.

• 2Q23 production was 8,093 boe/d, below our forecasts of 9,055 boe/d, mostly due to lower production in EG.
• We forecast 28 mbbl/d gross production in 3Q23 (4.9 mbbl/d net to Panoro 17.5% WI).
• With a total of 6 new Hibiscus Ruche wells (including 3 wells already on production), Panoro is on track to reach gross production plateau of ~40 mbbl/d (7 mbbl/d net to Panoro WI) in Gabon and overall WI corporate production of 13 mbbl/d at the end of the campaign.

• Riley’s 2Q23 financial and operating results will include the impact of the $330-million New Mexico acquisition, which closed on April 3, 2023.

• Around the time of the closing, the acquired assets were producing ~7.2 MBOE/d (58% oil / 81% liquids).

• 1Q23 production averaged ~13.2 MBOE/d. Riley’s 2Q23 production guidance range is 20.0-21.0 MBOE/d, representing a 56% Q/Q increase and a 101% Y/Y increase at the midpoints.

• Shell PLC ADR delivered a mixed result in the recent quarter, with revenues above market expectations but failed to surpass the analyst consensus in terms of earnings.
• The company generated $15.1 billion in cash flow from operations, including $4.8 billion in working capital, and its adjusted earnings were $5.1 billion.
• The decrease in prices, inflows from the initial margin, and decrease in accounts receivable were the key causes of the working capital inflow.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, and 200 Indices in the December 2023 Rebalance.
• In July, we saw the deletion of HDFC Limited (HDFC IN) from several indices in this family which triggered multiple intra-review index changes.
• At present, I do not see any changes for the SENSEX index but I see seven ADDs/DELs for BSE 100 and five ADDs/DELs for BSE 200.

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

• The end is in sight. Although July 2023 meetings of the ISA ended without finalizing the international sea mining code, the agency made significant progress on the regulations with members re-committing themselves to complete the work on mining regulations in a timely fashion.
• The ISA rejected an attempt by a group of nations looking for a long-term moratorium or a ban on undersea mining in international waters.
• With three meetings scheduled through July 2024, the ISA will continue to work to build consensus and finalize the mining code.

• The precious metals markets rebounded well in July following a healthy consolidation period in May and June.
• Commodity prices as well as mining equities rose in the month of July, bouncing back from two modest down months in May and June.
• Also on July 12th, U.S. inflation came in at 3.0% YoY and 0.2% MoM, compared to consensus of 3.1% YoY and 0.3% MoM.

• We continue to believe the path of least resistance is higher for the major equity indexes, which has been our stance since our 5/30/23 ETF Pathfinder.
• Beginning with our 7/18/23 Compass, we discussed our expectation for major 1+ year breakouts on the equal-weighted S&P 500 (RSP), Dow, and Russell 2000 (IWM). 
• The breakouts happened later that day on the RSP and Dow (above $153 and 34,280, respectively), and the IWM is now on the cusp of breaking out above $199.

• Discounts to NAV of covered holdcos have generally widened during July. Discounts to NAV: C.F.Alba, 47.5%; GBL, 39.1%; Heineken Holding, 16.4%; Industrivärden C, 6.6%; Investor B, 15%; Porsche Automobile Holding, 43.8%.
• The spread of Rio Tinto DLC tightened to 19%. Rio Tinto is a candidate for an Australian top hat structure.
• Interesting situations: Heineken Holding/Heineken, Porsche SE/vs. listed assets and Rio DLC.

• Welcome to your weekly maverick energy newsletter with views from both sides of the pond! Steno Research and 3Fourteen models align – see how we view the risk/reward in various proxy trades below!
• Apparently with the spikes in volatility over the last couple of weeks we need to talk about natural gas in Europe again.
• Various people have been harping about the Natural Gas markets in Europe, so let’s once and for all lay it out. Nooo, we are not going to run out of gas this winter.

• Rio Tinto reported a decent quarter, with consecutive operational improvements and the successful start of underground production at Oyu Tolgoi.
• Commodity prices and the energy transition influenced financial performance, with a strategic focus on strengthening their aluminum business and expecting significant returns from Oyu Tolgoi.
• Rio Tinto also recently expanded scandium production with the acquisition of the Platina Scandium Project.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Ardagh Metal Beverage Packaging’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Ardagh Metal Beverage Packaging (AMBP) is a carve-out from Ardagh Group. The business operates in the high-growth metal beverage can packaging segment, with a presence in North America, Europe and Brazil. Ardagh Group owns a 80% stake in the business, with the rest being mostly public float.

• Sherwin-Williams managed to surpass the revenue and earnings expectations of Wall Street.
• Given the positive first half and the current outlook for the second half, they have increased their full-year guidance.
• The company’s projections for the quarter’s consolidated net sales were surpassed and increased by a mid-single-digit percentage.

• Equinor’s results were a major disappointment as the company failed to meet the revenue expectations as well as earnings expectations of Wall Street.
• Equinor faced a challenging yet resilient quarter, with energy prices significantly down from the previous year.
• The company focuses on safety and maintaining a robust financial position, delivering value to shareholders through dividends and share buybacks.

Pan American Silver (PAAS) announced divestment of a number of non-core assets, including MARA and Morococha. The sale is in line with the company’s intention to optimise its project portfolio following the acquisition of Yamana’s Latin American assets earlier this year. It will generate combined cash proceeds of US$593m, plus net smelter return (NSR) royalties, resulting in a stronger balance sheet as well as a significant reduction in care and maintenance (C&M) costs. We will update our estimates and valuation following the release of the Q223 financial results scheduled for 9 August.

• The Chinese Communist Party’s Politburo, one of the country’s top decision-making bodies, on Monday, released a statement outlining plans to boost the country’s ailing property sector.

• But it didn’t give much detail or signal any major measures as some commodity traders had hoped.

• This uncertainty was also perfectly displayed in the price action of copper.

• JSR Corp (4185 JP)‘s pre-conditional tender offer from JIC is JPY4,350 per share. Since the deal announcement on 26 June, the gross spread has averaged 6.4%.
• The wide gross spread reflects the risk in satisfying the pre-conditions related to country approvals, particularly in China. JIC, unusually can waive all or part of the conditions precedent.
• The wild card is geopolitical developments. There are three China approval scenarios. The likely scenario is the deal approval under a normal procedure with a delay to the tender start.

• This is a classic swap arbitrage of shorting the acquirer and using the tendered shares to repay it. However, executing now would be meaningless as the swap ratio isn’t finalized.
• Nevertheless, we should consider securing a long position in OCI Holdings in advance. The target (45%) is quite substantial, indicating that the practical allocation rate won’t plummet dangerously below 1.
• Additionally, the likelihood of OCI Holdings’ swap price plummeting to completely nullify the 5.6% spread immediately after its determination appears to be low based on the current context.

• Dow delivered a positive result and managed an all-around beat in the last quarter.
• The last quarter was challenging for Dow, with lower year-over-year sales and earnings due to the slow global economic growth.
• Despite these headwinds, the company demonstrated resilience by executing its financial and operational strategies, resulting in sequential earnings improvement.

• Nucor delivered mixed results for the quarter, with revenues falling short of Wall Street expectations but managed earnings beat.
• The company’s three reporting segments saw higher earnings in the quarter, with the largest gains arriving from steel mill segments that saw higher realized pricing.
• In the company’s sheet mill group, Nucor continues its ramp-up in the Nucor Steel Gallatin.

• Just a few weeks ago, Oklo, a startup focused on advanced nuclear fission micro-reactor technology, made a significant splash with the announcement of its intention to go public through a SPAC backed by entrepreneur Sam Altman.
• Altman, the founder of OpenAI, has become a high-profile figure in the tech industry, with ambitions stretching beyond terrestrial concerns and reaching the very potential of global artificial intelligence. 
• To realize this bold vision, Altman asserts that the world requires an exponential increase in our energy production—a demand he anticipates being fulfilled by the nuclear sector.

• On 28 July, OCI Holdings (010060 KS) announced that it plans to conduct a tender offer to purchase up to 45% stake in OCI Co (456040 KS). 
• The tender offer price of OCI Co is 139,000 won. The method of this tender offer is to issue new common shares of OCI Holdings.
• In the short term (one month), we expect OCI Co’s shares to outperform OCI Holdings shares. This deal is structured to mainly benefit the OCI Group’s insiders.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Novelis’ ESG as “Adequate”, in line with its Social and Governance scores. The company has a “Strong” score for the Environmental pillar. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Novelis is the world’s largest producer of flat-rolled aluminium products and the largest recycler of aluminium globally.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Usiminas’ ESG as “Adequate”, reflecting its “Adequate” scores for the Environmental, Social and Governance pillars. Controversies are “Immaterial” and Disclosure is “Strong”.
• Usinas Siderurgicas de Minas Gerais SA (Usiminas) is one of Brazil’s largest steel-makers. The company’s key flat-steel production and iron-ore mining business units together account for the bulk of consolidated EBITDA.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Nobian’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.
• Nobian is a leading integrated European chemicals manufacturer and supplier in the energy-salt-chlorine value chain.

• Steel Dynamics had a disappointing second quarter with revenues below Wall Street expectations though they did manage to report improved net income and EBITDA.
• The management noted increased pricing and metal spread across flat-rolled and long-product steel operations.
• Steel Dynamics’ net income stood at $812 million, operating income at $1.1 billion, and EBITDA at $1.2 billion.

• Alcoa delivered a solid result and managed an all-around beat in the last quarter.
• The company had a mixed last quarter and reported slightly higher revenue and increased shipments but experienced challenges due to market conditions.
• Despite lower alumina and aluminum prices, they improved net loss due to the nonrecurrence of specific charges.

• HD Hyundai Global Service is getting ready to complete its IPO in 2024.
• The local media currently estimates the value of HD Hyundai Global Service to be about 2 trillion won to 3 trillion won.
• According to our NAV analysis, it suggests a base case valuation of 75,260 won per share for HD Hyundai, representing a 22% upside from current levels.

• Finally, we see the beginning of the long-anticipated monetary normalisation in Japan.
• This is the only country in the world to still have negative interest rates, which is odd given inflation has been rising, albeit modestly to Western Economies.
• This ultra-loose policy has seen bond yields remain close to zero while the yen has slumped.

• Schlumberger delivered a mixed set of results for the previous quarter, with revenues below the analyst consensus.
• The strong performance was driven by high-quality global revenue, particularly in the Middle East and Asia, with offshore activity contributing to margin expansion.
• Furthermore, Schlumberger’s divisions, including Digital & Integration, Reservoir Performance, Well Construction, and Production Systems, contributed to the overall revenue growth and margin expansion.

• There can be no doubt that gold has intrinsic value, as it is a rare commodity. But even if it wasn’t rare, like sand or manure, it would still have intrinsic value, just much less than it currently does.
• The question I have been asking is how much of the gold price reflects its intrinsic value, and how much is something else?
• Gold is a monetary asset and, as a result, is valued above and beyond its intrinsic value.

• HighPeak closed a secondary offering of ~14.8 million shares of common stock on July 21, 2023.

• The shares were priced at $10.50, netting the company proceeds of ~$151.2 million.

• Members of the management team and board of directors purchased ~10.0 million, or 68% of the shares sold