Energy & Materials Sector

• Pertamina Hulu Energi  is looking to raise around US$1bn in its upcoming Indonesia IPO.
• PHE is a subsidiary of  Pertamina (Persero), which operates an integrated end-to-end energy business, from upstream to downstream businesses. PHE manages the upstream oil and gas assets of its parent.
• In this note, we will talk about the positive aspects of the deal.

• Sovereign Metals Ltd (ASX:SVM) is an ASX-listed company focused on developing the world’s largest known natural rutile deposit and second largest flake graphite deposit in Malawi in south-east Africa.
• The company is well advanced with its pre-feasibility study and mineral resource update for the Kasiya rutile project and expects to complete this in coming months.
• In March 2023, Sovereign Metals demerged its other graphite projects into a new unlisted public vehicle, NGX Ltd, via an in-specie distribution to shareholders, in order to concentrate on developing Kasiya. 

• Kazatomprom is the world’s largest Uranium miner with the lowest cost of production.  
• The company has strong fundamentals with demand supply dynamics expected to steadily become more favorable going forward.
• Geopolitical concerns, which is the main reason for its low P/E, should subside as time passes by. 

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
• Azure Power Global Ltd
• ENN Natural Gas
• Vedanta Resources

• Pertamina Hulu Energi  is looking to raise around US$1bn in its upcoming Indonesia IPO.
• PHE is a subsidiary of  Pertamina (Persero), which operates an integrated end-to-end energy business, from upstream to downstream businesses. PHE manages the upstream oil and gas assets of its parent.
• In this note, we will talk about the not-so-positive aspects of the deal.

• International Graphite Ltd (ASX:IG6) is focused on developing its Springdale graphite project near Hopetoun, Western Australia, in conjunction with its planned Battery Anode Materials (BAM) facility 450kms away in Collie.
• The company listed in April 2022 raising $10m at $0.20/share to give a market capitalisation at listing of $35.9m, fully diluted.
• Since listing, the company has made significant progress with both projects, completing more than 20,400m of infill and exploration drilling at Springdale, leading to four new graphite discoveries; establishing a downstream research and development facility in Collie housing pilot graphite micronizing, spheroidising and purification equipment and completing a definitive feasibility study for a $12.5m commercial micronizing facility at the Collie operation. 

• Armour Energy Limited (ASX:AJQ) is a junior energy producer and explorer with assets across northern, southern and eastern Australia.
• The company is set to pursue a growth strategy with particular focus on production optimisation at Kincora to be delivered over the next 24-30 months.
• The success case should be readily apparent by end-2023. 

• Aag Energy Holdings (2686 HK)’s latest AGM results show a strong dissent from minorities. The number of NO votes per resolution varied from 590.9-652.5 million or 17.40%-19.22% of outstanding shares.
• The AGM voting shows that Xinjiang Xintai Natural Gas (603393 CH) will struggle to pass the scheme even if the record date is changed and some NO votes are invalidated.
• The risk-reward profile remains unfavourable as the downside to a scheme fail (12.1% to 17.0% downside) is greater than the upside to a scheme pass (+12.1% to HK$1.85 offer).

• On the 28 March, lithium play Liontown Resources (LTR AU) rejected Albemarle Corp (ALB US)‘s third proposal of $2.50/share, citing the revised terms as opportunistic.
• Since, that date, it’s been “crickets.” Preliminary due diligence was not provided to Albemarle. Liontown responded to media speculation today saying it has received no new takeover proposals. 
• Yet behind the scenes, an interested party has been building a stake, paying up to $2.75/share, 1.5% above the last close.

• Halfway through the review period, we see 5 potential changes for the Nifty Next 50 Index (NIFTYJR INDEX)/ Nifty 100 Index (NSE100 INDEX) at the September rebalance.
• All the potential adds are expected to migrate from MidCap to LargeCap at the AMFI June reclassification, while we expect two of the potential deletes to move the other way.
• Of the potential deletes, one is a high probability deletion from the MSCI India Index at the May QCIR while there is another that is a lower probability deletion.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• In unprecedented fashion, AAG Energy Holdings (2686 HK)‘s board adjourned the Court Meeting on the 27 April due to some voting instructions not being duly processed.
• That reasoning had a whiff of nonsense. And just under a week later, there has been no update. Perhaps this is moot though.
• At yesterday’s AGM, disinterested shareholders turned up in record numbers to vote against stock-standard resolutions. If a similar turnout were present at the Court Meeting, the Scheme would have failed. 

• In its latest Commodity Markets Outlook report the World Bank said last week that global commodity prices are expected to decline this year at the fastest pace
• The agency expects prices to fall 21% compared to last year during 2023.
• For 2024 the World Bank expects prices to remain stable. 

• The Company has completed 6 drill holes, totalling 1,364m
• A new diamond drill is on site which will commence drilling next week and will improve drilling capabilities and productivity
• The Company has commenced preliminary studies for a future preliminary economic assessment

• Despite macro-challenges like weak global industrial activity, high cost inflation, ongoing geopolitical issues, and waning demand in U.S. construction-related end-use markets, PPG Industries delivered an all-around beat in its recent result.
• During the quarter, PPG gained several new clients, including Walmart’s 3,800 paint-related retail locations.
• Besides, with more global rollouts planned, the company expects the automotive refinish industry to have 1,400 MOONWALK machines installed.

Agnico Eagle Mines (AEM) started the year with strong quarterly production of 813koz at an US$832/oz total cash cost and a US$1,125/oz all-in sustaining cost (AISC). A number of records were achieved, including in cash flow and safety. This marks the final quarter incorporating 50% of production from Canadian Malartic. From 30 March, this will increase to 100%, following AEM’s acquisition of Yamana’s Canadian assets, which will add c 80–90koz in attributable production per quarter. Guidance for FY23 remains unchanged at 3.24–3.44Moz at a cash cost of US$840–890/oz and AISC of US$1,140–1,190/oz. An unchanged quarterly dividend of US$0.40/share was declared.

• AlcAlcoa Corporation’s first quarter of 2023 was a disaster as the company failed to meet the revenue expectations of Wall Street and delivered wider-than-expected losses.
• Its revenues remained flat at $2.7 billion on lower shipments, realized prices were higher for both aluminum and alumina, with aluminum up 7% and alumina up 8% sequentially.
• Besides, Alcoa announced the addition of some grades of non-metallurgical alumina to the company’s EcoSource low-carbon alumina brand.

• The review period for the LQ45 Index ends on 30 June. The changes should be announced in the last week of July, becoming effective after the close on 31 July.
• Potential adds are Adaro Minerals (ADMR IJ), Bumi Resources Minerals (BRMS IJ), Panin Financial (PNLF IJ), Energi Mega Persada (ENRG IJ), Transcoal Pacific (TCPI IJ) and Pertamina Geothermal Energy (PGEO).
• Potential deletions are Japfa Comfeed Indonesia (JPFA IJ), Indocement Tunggal Prakarsa (INTP IJ), Timah Persero (TINS IJ), Bank Tabungan Negara Persero (BBTN IJ) and Chandra Asri Petrochemical (TPIA IJ). 

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Yuexiu Property (123 HK) rights issue and ADICON Holdings Limited (ADI HK), Horizon Construction Development (1887128D HK), Mankind Pharma (6596876Z IN) IPOs.
• Event-Driven developments – Blackmores Ltd (BKL AU), United Malt Group Ltd (UMG AU),  Aag Energy Holdings (2686 HK), HKBN Ltd (1310 HK), Metro Pacific Investments Co (MPI PM), Lian Beng.

• Southbound will close for 3 days due to holiday, we view it as a good time to buy the stock on short-term momentum
• Investment thesis for CNOOC is similar to China Mobile: Strong southbound flows and A/H premium to narrow to support H share price
• Valuation is attractive.  Potential share buybacks and trading dual counter (to narrow AH gap) are the upcoming catalysts

• Currently, the market cap of Ecopro BM surpassed Posco Future M. As a result, Ecopro BM is in a position to replace Posco Future M in the K-New Deal rebalancing.
• They are direct peers with a high price cointegration. We should consider using the rebalancing event of this index as an inflection point from a Long Short pair trading perspective.
• The likelihood of Ecopro BM being included in the Solactive Lithium Index in October could potentially increase the expected return of taking this Long Short position more preemptively.

• The Mosaic Company has its results just around the corner and it would be interesting to evaluate its last financial performance.
• The company had delivered mixed results in the last quarter with below par earnings.
• Besides that, the company has expanded its MicroEssentials offering in phosphates by increasing capacity at its Riverview site.

• Today after the close, Kansai Paint (4613 JP) announced it would sell 3 investment securities in the current quarter and would book a gain of “around ¥30bn.”
• As discussed in Kansai Paint (4613 JP) Secondary Offering & Buyback and All the Subsequent Flows, Toyota’s sale of KP shares meant KP could sell Toyota shares. Now they will.
• This is a set-up to another buyback, eventually to unwind more in-bound cross-holdings and to raise ROE. 

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• The past 3 weeks have produced a failed new 2023 high in WTI Crude Oil futures (CL1), a bearish weekly reversal pattern and a break below the recent prominent gap.
• A weekly close below the gap base at 75.72 will confirm a renewed and dominant MT downtrend bias and target a retest of the 2023 low at 64.12.

• Newmont Corporation ended 2022 with a mixed fourth-quarter performance.
• The company generated $3.2 billion in revenue in Q4 and started Q1 with a $2.7 billion of revenue.
• Newmont improved the coaching and development of its frontline leaders to improve the effectiveness of its important control verifications.

• The 27 April vote was adjourned as Aag Energy Holdings (2686 HK) Board was notified by “certain beneficial owners indicating that their latest voting instructions were not duly processed.”
• The meeting would not be adjourned if the YES vote was going to sail through. A delay helps the offeror as these owners will vote YES and deal fatigue sets in. 
• Risk-Reward is still unfavourable at the last close. The deal break fair value range is HK$1.37-1.45 per share, with 16.0%-11.0% downside. This compares to the 13.5% upside from the offer. 

• Exxon Mobil is about to report its Q1 2023 results, investors should keep their long-term view and dismiss any quarterly noise.
• Management is now becoming increasingly aggressive in its expansion efforts and should provide more information on that during the quarter.
• If you bought Exxon Mobil Corporation (NYSE:XOM) back in 2020 when I laid out my investment thesis on the company, then most likely you wouldn’t be bothered by the quarterly fluctuations of the stock.

• The local ghost hedge fund began to excessively invest in credit, which leveraged 2.5 to 3 times when the eight manipulated stocks started to increase rapidly in price.
• Then, the Financial Supervisory Service deemed this excessively-leveraged trading behavior as unusual, and news of an investigation into their activities broke out and triggered them to dump the shares.
• The key now is identifying in advance the stocks that will experience similar selling patterns. To do so, we need to prioritize selecting stocks with high-margin balances in recent times.

• We’re down to the pointy end of AAG Energy Holdings (2686 HK)‘s Scheme. And at a gross/annualised spread of 15.6%/318%, all is not well.
• The uncertainty is not without substance. A derisory Offer, one that is rejected by a proxy advisor; together with a silent, large shareholder no one seems to know.
• Shareholders go to the vote this Thursday, the 27th April. Currently trading 5% below the undisturbed price.

• Ahead of Aag Energy Holdings (2686 HK)’s vote on 27 April, the gross spread to Xinjiang Xintai Natural Gas (603393 CH)’s HK$1.85 offer sits uncomfortably high at 13.5%. 
• The key risk remains that minorities vote down the scheme. Retail forums are active with mixed views on the offer. Peers have also modestly re-rated, which helps the NO camp. 
• At the last close, the risk-reward profile is unfavourable as the downside to a scheme fail (-16.0%) is greater than the upside to a scheme pass (+13.5%).  

• With 4 trading days left in the review period, we see three potential changes for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in June.
• Kum Yang (001570 KS), Cosmochemical (005420 KS) and Youlchon Chemical (008730 KS) could replace Dongwon Industries (006040 KS), Hwaseung Enterprise (241590 KS) and Hyundai Home Shopping Network (057050 KS). 
• If approved by shareholders, the Dongkuk Steel Mill (001230 KS) split increases the probability of Youlchon Chemical (008730 KS) inclusion and Hyundai Home Shopping Network (057050 KS) could avoid deletion.

• With 4 trading days to go the review period, we see 13 potential index changes at the June rebalance that will be implemented at the close on 9 June.
• We estimate a one-way turnover of 1.94% at the June rebalance leading to a one-way trade of CNY 5.05bn.
• With the review period nearly complete, the gap between the potential adds and deletes could narrow ahead of the announcement of the changes as pre-positions are built.

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

• Don’t get fooled by the tight inventory narrative While many copper bulls continue to write about the low copper inventories I would like to inform you once again that there is simply no correlation between copper inventories and the price of the industrial metal.
• If you want to be precise – you could even make the case that excessive lows in the LME copper inventory data actually mark cyclical highs in the price of the brownish metal.
• US Leading Economic Index’s recession signal deepens in March, Conference Board reports: “The US LEI fell to its lowest level since November of 2020, consistent with worsening economic conditions ahead,” says CB’s senior manager for business cycle indicators.

• We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 111 Inc (YI US), Estia Health (EHE AU), Aag Energy Holdings (2686 HK), United Malt Group Ltd (UMG AU), Origin Energy (ORG AU), Toshiba Corp (6502 JP). 
• Lowest spreads – Healius (HLS AU), Liontown Resources (LTR AU), Lian Beng (LBG SP), Golden Energy & Resources (GER SP), HKBN Ltd (1310 HK), Mincor Resources NL (MCR AU).