Energy & Materials Sector

• Short seller Blue Orca is alleging Atlantic Lithium (ALL LN) is seeking to obtain a Ghanaian lithium mining licence via “textbook corruption”.
• Piedmont Lithium (PLL AU) is a substantial shareholder of Atlantic, together with a co-development agreement for the Ghanaian project, in which the mining license has yet to be ratified. 
• Orca reckons the license ratification will fail the corruption sniff test, which in turn will jeopardise the Tennessee lithium offtake facility, currently awaiting a DOE grant.

• Shougang Fushan Resources (639 HK) trades at 4.5x/5.1x FY22e/23e with 50% of the market cap in cash and a 17.8%/15.8% FY23e/24e dividend yield (based on an 80% payout ratio).
• Since our call in FY21, close to 64 cents of the share price (25% of the current share price value) has been returned as dividends making it a dividend machine. 
• We forecast at least another 70 cents of dividend for H2 FY22 and FY23, bringing the dividend in 3.5 years to more than half the current share price. 

• Gold Fields Limited’s recent capitulation is likely overplayed and presents investors with a value gap.
• Despite challenges such as Eskom power cuts, mine commissioning delays, and systemic risks in Ghana, Gold Fields’ production remains best-in-class and is growing exponentially.
• Gold Fields Limited’s (NYSE:NYSE:GFI) pro-cyclical nature means that its more than 17% month-over-month capitulation is of no surprise, especially considering a concurrent decline in gold prices induced by a volatile global monetary policy environment.

• Multiple solutions for the growing problem of battery safety. 
• META is developing two technologies that can make lithium-ion batteries safer and reduce material needs to lower weight and increase range.
• We highlight META’s NPORE® and NCORE™ technologies on the following pages.

• Perpetua Resources Corp. (Nasdaq: PPTA; TSX: PPTA) is an Idaho based (Stibnite jurisdiction), gold-antimony-silver (Au-Sb-Ag) junior explorer/producer.   
• ACF is releasing a aluation increase for PPTA based on milestones achieved since our initiation note. ACF identifies PPTA as a US national strategic asset (Sb) and best-in-class gold asset. 
• PPTA is an ESG leader amongst junior miners. PPTA holds a unique antimony (Sb) reserve in the US and is positioned to be the only domestically mined source of Sb.

• GrafTech International Ltd (EAF US) results for Q4 2022 were worse than expected, and guidance for volumes down 50% in H1 2023e was shocking.
• In summary, our intrinsic value was too aggressive, and there was a low margin of safety on the investment. Constant execution issues in a favorable environment didn’t help our cause.
• The stock isn’t as cheap when trading at 11.1x/9.5x FY23e/FY24e. The deleveraging story now gets pushed out to the end of FY25. The investment is dead money for two years.

• Steel Dynamics had a strong quarter, generating sales, earnings, and cash flow above market expectations.
• Sinton is demonstrating considerable operating improvement and has a clear path to profitability in the second quarter of 2023.
• While metal spreads continue to widen due to stable product pricing and decreased steel input costs, steel fabrication businesses had a solid quarterly operating income of $682 million.

• Williams reported a solid quarter and managed an all-around beat driven by strong performance across its core businesses and JV upstream operations.
• Although operating and maintenance expenditures increased, primarily due to more frequent maintenance tasks, the company is still on track to meet its goals.
• This is an important step towards expanding the company’s core regulated utility business.

• Enterprise Product Partners delivered a mixed set of results in the quarter.
• Enterprise moved a record 11.2 million barrels of oil equivalent per day which helped it deliver an all-around beat.
• They believe that a wide gas-to-crude differential could result in a considerable cost advantage for American petrochemicals globally.

• SDRL is trying to put emphasis on receiving all the required regulatory approvals to close the Aquadrill transaction than on reporting its quarterly results
• Fourth quarter 2022 is not likely to show much of the benefits the business and industry have been experiencing in recent weeks
• Day rates have continued to increase as utilization rates remain high and companies are not willing to reactivate their drill ships unless customers pay for the process

• Valero had a solid year-end, with refineries running at 97% of their capacity in a positive refining margin situation.
• Besides, significantly discounted sour crude oils and fuel oils helped its refinery.
• High natural gas costs in Europe also encouraged refiners to process sweet crude oils rather than sour crude oils, placing additional pressure on sour crude oils.

• The OZ Minerals (OZL AU) Scheme Meeting for the acquisition by BHP Group (BHP AU) will be held 13 April. The stock could stop trading post close on 18 April.
• OZ Minerals Ltd (OZL AU) is a member of the S&P/ASX100 Index and S&P/ASX 200 (AS51 INDEX) so there will be replacements made at the close on 18 April.
• Passive trackers will need to buy a fair amount of stock (with a decent impact) on the potential inclusions and the stocks could outperform over the next few weeks.

• Whitehaven Coal (WHC AU) underwhelming capital allocation in H1 2023 may have disappointed investors, but armed with a war chest of 2.47 bn AUD (35% mkt cap), we remain optimistic.
• The company aims to purchase 240 mn shares ( or about 25% of outstanding shares ) over and above the 10% it completed from last year’s buyback phase. 
• Trading at 2.2x/3.2x  FY23e/FY24e, the stock is extremely cheap with a conservative dividend yield of 9.1%/6.3% FY23e/FY24e ( assuming a 20% dividend-only payout ratio). 

• The BHARAT 22 ETF (ICICIB22 IN) will rebalance on 17 March while the CPSE ETF (CPSEBE IN) and Nifty Bank Index (NSEBANK INDEX) will rebalance on 29 March.
• There are no constituent changes for the indices in March but there will be capping changes for the stocks and there is a reasonable impact on some stocks.
• There are stocks that will have opposing flows on the two days, while there are some stocks that will have same way flows from passive trackers.

• The IE considers BHP Group Ltd (BHP AU)’s A$28.25 offer for OZ Minerals Ltd (OZL AU) to be fair and reasonable as it is within its valuation range of A$27.37-30.47. 
• Copper prices and peers’ share prices have risen since the deal announcement. The IFA address perky copper prices by using reasonable long-term copper prices to value the assets.
• This is done with no hint of a competing bid. At last close price and for the 2 May payment, the gross and annualised spread is 0.9% and 6.1%, respectively.

• On 2 March, the Court approved the distribution of the OZ Minerals Ltd (OZL AU) Scheme Booklet, which was posted on 3 March 2023. The Scheme Meeting is 13 April 2023.
• The Independent Expert has concluded the Scheme is Fair and Reasonable and in the best interests of OZL shareholders. Directors unanimously support.
• This deal is almost certainly done. The IE report is, as is often the case, enormously informative. Watch the franking credit timing. Not a lot of spread left here. 

• Notable constituent changes are Posco Chemical (003670 KS), Douzone Bizon (012510 KS), Ecopro (086520 KS), Connectwave (119860 KS), SK Innovation (096770 KS), KMW (032500 KS), & Hanmi Science (008930 KS).
• Among these, Douzone Bizon (012510 KS) and KMW (032500 KS) are expected to receive the most significant flow impact (x ADTV) at the close of March 9th.
• Since the flow size is concentrated within a fairly right trading window, between 2 pm and the close on the 9th, the degree of price impact should be relatively higher.

• Most PGM prices are below their moving averages, with supply shortages and higher demand en route.
• Impala Platinum’s stock is priced at a cyclical discount.
• The stock provides a lucrative dividend opportunity with the firm’s 30% of operating cash flow distribution policy.

• Ecopro Materials, an affiliate of Ecopro, is getting ready to complete its IPO in 2H 2023. Ecopro Co has a 52.8% stake in Ecopro Materials. 
• Ecopro Materials’ core products are lithium cell core materials called precursors, which are used as part of the rechargeable batteries. 
• The expected market value of Ecopro Materials is about 3 trillion won to 4 trillion won (US$2.3 billion to US$3.0 billion).

• Indo Tambangraya Megah (ITMG IJ) dividend yield at an assumed 150 USD/ton price in FY23e ( FY22 px: 192 USD/ton) is over 20% (FY22 yield 25-28%).  
• Investors staying over FY22/FY23e will get 45-48% of the share price returned in dividends assuming a 70% payout ratio, and the company’s cash pile will be >1.5 bn USD.
• Coal prices have been softer recently, but the recent mining incident threatens a slower rebound in coal production from China. The company looks cheap at 3-3.5x PE FY23e.

• Occidental Petroleum had a weak financial performance in the last quarter and failed to meet Wall Street expectations with respect to revenues as well as earnings.
• Storm effects in the Permian and Rockies were largely countered by superior performance in the Gulf of Mexico and the Al Hosn.
• While Midstream and marketing earnings were within projections, OxyChem’s performance exceeded expectations due to stronger-than-anticipated market dynamics.

On 21 February 2023, Wheaton Precious Metals (WPM) announced that it had produced and sold 286,985oz and 293,234oz gold, respectively, and 23,979koz and 21,570koz silver, respectively in FY22. Subject to any historical restatements in its FY22 financial results next week (possible but unlikely and very unlikely to be material), this implies that it produced and sold 66,025oz and 68,996oz gold and 5,353koz and 4,935koz silver, respectively, in Q4. In the case of gold, in particular, this was below our prior forecast (see Exhibit 1), but is consistent with the 14.7% quarter-on-quarter decline in copper production at Salobo announced by Vale on 31 January on account of ‘major maintenance’. This note updates our forecasts for Q422 and FY22 in the light of WPM’s actual production and sales numbers and for FY23 in the light of maiden, detailed guidance.

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.

• TPL reported fourth quarter revenue impacted by a trifecta of events. The decline in energy prices led to reduced production levels causing water sales to also decline in a period
• TPL had been seeing production rebound in the summer of 2022. The volatility in energy prices in the Permian Basin pushed some producers to slow down their well development plans
• The lower production was the biggest culprit to the decline in revenue as producers were not incentivized to produce oil and natural gas.

• ECVT suffered damage from winter storm Elliot towards the end of the fourth quarter, but that was not enough to prevent it from issuing upside adjusted EBITDA guidance
• ECVT has experienced continued demand for its ecoservices and catalyst technologies
• The pass-through costs of sulfuric acid makes sales figures look volatile, but adjusted EBITDA is the true measure, which continues to trend higher

• We revise our recommendations for FOSUNI 6.75% Jul 2023, FOSUNI 5.5% Aug 2023, FOSUNI 6.85% Jul 2024 to Hold from Sell. FOSUNI 5.95% Oct 2025 and FOSUNI 5.05% Jan 2027 remain on Hold recommendations and Credit Direction remains Negative. 
• The new RMB12b credit line provides some liquidity relief and improves the likelihood of Fosun’s ability to meet its debt obligations in 2023.
• However, more offshore asset disposals or pledges for loans need to be done to cover the remaining offshore bond maturities during the year.

• Reliance Steel & Aluminum had a mixed financial performance in the last quarter of 2022 and missed out on meeting the revenue expectations of Wall Street given the ongoing volatility in metal prices and general economic uncertainty.
• Throughout the fourth quarter, prices fell for the majority of carbon steel, stainless steel, and aluminum products sold.
• We give Reliance Steel & Aluminum Co a ‘Hold’ rating with a revised target price.

• 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.
• Gold retraced almost 50% of its aggressive Q4/Q1 uptrend in the past 4-5 weeks. The correction has bottomed at critical MT support.
• The weekly close has the potential to deliver a bullish MT reversal pattern this week and likely set up the next phase of the MT uptrend, targeting 2070/75.

• ETU’s flagship Hawkins project sits in one of the best mining neighbourhoods in the world with its massive 681km2 land package spanning 80km along the Porcupine-Destor Fault which hosts >100 Moz Au
• The Band-Ore Project is an asset that the market is not yet giving ETU any credit for, however, the high-grade historical resources and recent drill results make for a highly promising project
• Committed partners – Kinross & Crescat Capital each own 10% 

• Weak EBITDA generation in 2022, but margins recovering in 2H22.
• Upgrades from MSCI to ‘A’, and both S&P and Fitch to BB+ are proof of the company’s hard work.
• We recommend a BUY on CEMEX 27 and the CEMEX perp.

• Albemarle Corporation’s fourth quarter results were mixed as the company failed to meet the revenue expectations of Wall Street.
• However, its adjusted EBITDA increased by more than 400% yearly resulting in an earnings beat.
• While higher lithium prices were a factor in these outcomes, there was also a notable increase in volume growth.

• Pioneer Natural Resources Company delivered a mixed set of results in the last quarter with revenues falling short of analyst expectations.
• The peer-leading free cash flow of Pioneer per BOE is supported by strong margins.
• We give Pioneer Natural Resources Company a ‘Buy’ rating with a revised target price.

Edison Investment Research is terminating coverage on Newmont Corporation (NEM). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.

Pan American Silver (PAAS) reported an encouraging set of Q4/FY22 results, with Q4 EBITDA of US$92.3m exceeding consensus expectations by c 21% and FY22 EBITDA coming in at US$272m, c 6% above consensus. The bottom line was negatively affected by US$157.3m of one-off costs relating to the Yamana transaction, which is expected to be completed in Q123. Our valuation and forecasts remain under review.

• Today after the close, Kansai Paint (4613 JP) announced a passel of crossholders would sell 26.2mm shares in a Secondary Offer. They also announced a buyback. 
• The buyback, spending up to ¥12bn to buy back up to 8.2mm shares, starts after the Offering is delivered, and extends until 15 March 2024.
• This offering reduces cross-holder “strategic holdings” by a third. This will impact FFW. Complicated index impacts will occur over time.

• The review period for the March rebalance ended on 31 January, changes will be announced in the next few days and implemented at the close of trading on 9 March.
• We forecast one add/delete for the Secondary Battery Index and Game Index, and a couple of adds/deletes for the BBIG Index. There will be a lot of capping changes.
• The largest inflows are expected on Posco Chemical (003670 KS) and Douzone Bizon (012510 KS); the largest outflows are expected on SK Innovation (096770 KS) and KMW (032500 KS).

• Investors have completely ignored “The New MCG”. If management can hit EBITDA targets, we see over 50% upside for the stock
• Rapid cost cuts of Y135 billion will be a catalyst for the share price
• Transformation to leaner, more focused group with strategic growth in EVs, hydrogen, semicon and health

• For the month of February, 14 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$23bn.
• The average premium for the new deals announced (or first discussed) in February was 34%.
• This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

• Kansai Paint’s shareholders aim to raise around US$291m via a secondary follow-on offering. This is a large deal to digest, at 34 days of three month ADV.  
• The firm has also mentioned that it will conduct a share buyback of up to 8.2m shares worth approximately 3.5% of TSO or US$87.6m (JPY12bn). This will begin after settlement. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• One of top three global industrial gas suppliers well positioned to capitalise on renewables growth like hydrogen
• Unbroken history of annual dividend increases for the past 40 years
• Risks include execution hiccups and cost overruns

• The agency estimates that roughly 46% of Ukraine’s wheat production lies in areas where the war is currently threatening the planting process.
• US Soybean Crush Margin remains very high and therefore continues to support soybean meal prices
• USDA is expecting a larger uptick in planted acres for Wheat and Rice but a large drop in planted acres for Cotton.

• Cameco Corporation is in the middle of a substantial turnaround, which investors could soon price.
• The company’s financial results improved in 2022, it has secured a record number of supply contracts.
• The momentum anomaly is set to play its hand, but the stock still possesses valuation concerns, according to the company.

• Tupras is Turkey’s largest refiner in Turkey supplying roughly 55% of Turkey’s petroleum product needs and 57% of Turkey’s storage capacity. The refineries produce a full range of refined petroleum products including gasoline
• Company is owned 53% by KOC, the largest private conglomerate in Turkey that accounts for an estimated 7% of the country’s GDP.
• Tupras produced a stellar set of 4Q 2022 results reflecting significant margin improvement; Revenue and EBITDA were up 104% and 212% over 4Q 2021 respectively. We maintain our buy recommendation

• 2022: A year of record performance and successful transformation for Holcim
• Solutions & Products reaching 19% of net sales and fast expansion in the most attractive market of North America
• We increase our target price to CHF 71, implying 22% upside from here