Energy & Materials Sector

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this week:Huafa Property Services Group (982 HK)‘s Scheme. Asia Cement China (743 HK) also suspended pursuant to the Takeovers Code. 
• Key updates took place on: QV Equities (QVE AU), Boral (BLD AU), Greatview Aseptic Packaging (468 HK), Sciclone Pharmaceuticals (6600 HK), and Chilled & Frozen Logistics Holdings (9099 JP).

• On the 9th May, Shandong Xinjufeng (301296 CH) (XJF) made a pre-conditional voluntary general Offer at $2.65/share (best & final), contingent on a 50% acceptance. Final/special dividends to be added.
• GAPack(468 HK) has made it clear that XJF is a competitor of GAPack. And Mengniu (2319 HK) may review its relationship if pre-cons are satisfied/waived; or the Offer gets up.
• XJF has announced the necessary applications have been sent to NDRC, MoC, and SAMR; and it prepping for a shareholder meeting to approve the Offer. 

• Eagle Materials, a producer of building materials such as cement and concrete, concluded the fiscal year 2024 with robust financial performance, reflecting in its record revenue of $2.3 billion and record diluted EPS of $13.61.
• The financial results were primarily attributed to the company’s dedicated workforce and superior quality products, which continue to attract customer support and investor confidence.
• A highlight of Eagle Materials’ operational performance was its effective execution of safety measures.

• 24mos ago, Kansai Paint (4613 JP) announced a new MTMP, a large buyback, and plans to unwind cross-holdings. Big. 15mos ago a large secondary offering kicked off the festivities.
• Key was Toyota sold. Then KP could sell its Toyota shares – two-thirds of its cross-holdings. The offering was one to buy. A buyback followed. KP vs Nippon Paint doubled.
• KP offered a CB recently with the delta hedge done by TN-3. Now there is a HUGE new buyback. Really big. This gets rid of more cross-holders. And there’s more.

• VAALCO has brought online four new long (2.75 mile) lateral wells in Canada.
• Three wells delivered IP rates of 500 bbl/d while the fourth well flowed 350 bbl/d for a total production capacity addition of 1.85 mbbl/d.
• This is a good result and compares with individual IP30 oil rates of 374-444 bbl/d achieved at the two wells drilled in 2023.

• The 1Q24 production of 2,730 boe/d was close to our expectations.
• Arrow’s cash position of US$11.6 mm was also in line.
• The first water disposal well at RCE is being brought into production and the conversion of the CN-4 well is currently waiting regulatory approval.

• Chinese cement play Asia Cement China (743 HK) (ACC) is currently suspended pursuant to the Takeovers Code.
• Asia Cement (1102 TT) has been ACC’s majority shareholder since its 2008 IPO. Asia Cement currently holds 73.07%. 
• Shares gained ~50% this week. On serious volume. With net cash of US$1.03bn vs. a market cap of US$66mn, a privatisation should command a punchy premium to the last close.

• Asia Cement China (743 HK) entered a trading halt based on the Hong Kong Code on Takeovers and Mergers. Bloomberg reports that Asia Cement (1102 TT) is considering a buyout. 
• Privatisation interest is unsurprising, as ACC’s EV has been negative since 6 July 2022 due to headwinds from the weak Chinese property sector and uncertainty about cash use.
• An offer price of HK$5.18 would imply a zero EV. However, due to the difficult trading conditions, we think an offer would be around HK$4.00 per share.

• Boss Energy, an Australian uranium producer, saw a significant drop in stock price following the sale of shares by three directors.
• The directors sold a substantial amount of their stock, representing 83%, 63%, and 63% of their ordinary shareholdings respectively.
• The high volume of trading on the stock on the day of the sale has raised concerns about the timing and implications of the director’s actions during a critical phase of the company’s life cycle.

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• 1Q24 production of 3,009 boe/d was in line with our forecasts.
• The net debt at the end of March was ~US$1 mm below our expectations.
• We continue to assume that the 2nd DUC will not be completed before 4Q24 with the further DUCs being completed in 1Q25 and 2Q25.

• With the review period complete, we take a look at the potential index changes at the June rebalance as well as potential index inclusions due to M&A.
• Timing is key for the ad hoc inclusions to the S&P/ASX 200 (AS51 INDEX) with an ad hoc inclusion being announced prior to the regular announcement.
• Passive trackers will need to buy 1.3-27x ADV on the expected adds and have 0.8-4.7x ADV to sell on the expected deletes. Shorts have built up on the potential deletes.

• As one of the fastest-growing economies globally, India is projected to become the third-largest economy, trailing only China and the US, by 2027.
• Amid macroeconomic challenges worldwide, investors are eager to tap into India’s robust economic growth.
• However, economic growth does not always correlate with equity market growth, as seen in Spain and Italy during the 1980s and 1990s, and more recently in China.

• The OBA-1 well onshore Morocco has encountered an approximate 70 m gross interval containing elevated resistivities coincident with elevated mud gas readings, indicating potential gas pays, with no water-bearing reservoirs identified.
• While the approximate 200 m gross thickness for the reservoirs is in line with pre-drill expectations, the absence of water in the 70 m gross interval is particularly encouraging and could suggest larger than expected resources (12 bcf pre drill).
• The well is now expected to be tested in 3Q24.

• ADF announced a series of new contracts totalling $90M spanning the pharmaceutical, industrial, and public infrastructure sectors.
• This includes additional work awarded for the pharmaceutical project in the Midwest U.S. which ADF was recently awarded phase 2 for.
• ADF will be reporting Q1/25 on June 11th, we are expecting $90.1M revenue (12% YoY), 23.5% gross margin, and $17.2M EBITDA (19% margin).

• Two wells recently drilled at Nong Yao are likely to add some reserves.
• The 37H development well has been put on production from the primary reservoir at an initial flow rate of ~500 bbl/d net to Valeura’s WI.
• The well has also encountered 68 feet of net oil pay across eight separate appraisal target intervals.

• Over the weekend, the FT reported that Anglo was urged by top shareholders to extend talks with BHP over its proposed merger. 
• BHP’s third unsolicited non-binding offer was rejected last Wednesday. The merger exchange ratio was raised by 9% to 0.886, an increase of 24.8% on the initial offer ratio.
• Anglo left the door open for talks, extending the PUSU deadline for BHP to make a firm offer by 1 week to this Wednesday (29 May).

• Barito Renewables Energy (BREN IJ) raised around US$200m in its Indonesian IPO, after pricing at the top end at IDR780/share. Its eight-month lockup will expire on 29th May 2024.
• Barito Renewables (BR) is Indonesia’s largest geothermal power producer, and the third-largest globally by installed capacity, as per the firm.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• Impending block deals which generally create supply over-hang on the stock leads to a negative impact on the stock
• These block deals generally include selling promoters and big funds at a price discount to its current market price
• Historically, such events suggest once the block deal is done; stock reacts positively creating a Special Situation Opportunity

• S&P 5700 year end target remains intact after MONTHLY breakout. 
• Copper and silver rally to resume with dollar potentially falling.
• Semis continue to lead tech and look for software to join.

• Genel Energy is a high-risk arbitration opportunity with potential for significant reward due to its legal dispute with the Kurdistan government
• Despite previous market capitalization reduction in the 2014 oil crisis, Genel Energy is now an undervalued asset with strong cash position and minimal debt
• With current market cap at £210 million and significant cash reserves, the company has notable potential for growth, but the unpredictable nature of the situation makes it difficult to model or quantify with certainty

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Expectations of an “above-normal” monsoon in 2024 currently help to keep prices for commodities that are in large parts grown in India under control.

• That includes rice as well as sugar prices.

• According to the IRI’s latest ENSO forecast, La Niña becomes the most probable category in Aug-Oct, 2024 through Jan-Mar, 2025.

• Adriatic is raising an additional $50 million in capital through a discounted offering
• Orion is selling down half of their equity position in the raise, with plans to trim further after 90 days
• Queens Road Capital converted their $20 million convertible debt into equity ahead of schedule in March

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• Uranium spot prices are up 84% since our last report in late 2022, yet we still expect further momentum in the sector.
• The sentiment on nuclear power from governments around the world has begun to shift, with many nations ramping plans for reactors.
• While new mines begin production and future mines achieve financing, we continue to believe the current spot price is too low in the short term.

• With a day to go in the review period, there could be 2 changes for the iShares China Large-Cap (FXI) (FXI US) in June.
• There should be more than 1x ADV to buy on one of the adds while there will be nearly 5x ADV to sell on one of the deletes.
• There will be positioning in all the potential changes but there appears to be higher interest in one of the potential adds and one of the potential deletes.

• Market fears production return will impact prices, with Wood McKenzie predicting increase in June production
• Northeast, Permian, and Haynesville expected to see production rebound in the coming months
• Price rally in US market driven by short summer positions, but weather will play a key role in price movements, with heat expected in the coming days potentially mitigating any retracement

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

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.

• Lenovo
• UPL Ltd
• Xiaomi Corp

• 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: Modec Inc (6269 JP) prices its US$535 million secondary offering.
• Event-Driven developments: Shanghai Henlius Biotech (2696 HK), Hong Kong Television Network (1137 HK). Sciclone Pharmaceuticals (6600 HK), Kfc Holdings Japan (9873 JP), Best World International (BEST SP), PropertyGuru (PGRU US). 

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this week: Carlyle’s tiult for KFC Holdings Japan (9873 JP). Shanghai Henlius Biotech (2696 HK) suspended pursuant to the Takeovers Code.
• Key updates took place on: Alumina Ltd (AWC AU), L’Occitane (973 HK), BHP Group Ltd (BHP AU)/ Anglo American (AAL LN), and SciClone Pharmaceuticals (6600 HK).

• Enterprise Products Partners L.P., based on its first quarter 2024 earnings, seems to have continued its consistent delivery, with a 7% increase in gross operating margin compared to the first quarter of last year.
• This growth was primarily driven by contributions from new assets and a 17% increase in net marine terminal volumes.
• Positive developments within the company include the expansion of their Permian natural gas processing infrastructure and the start of their Leonidas plant in the Midland Basin and Mentone 3 plant in the Delaware Basin.

• MPLX reported year-over-year growth in adjusted EBITDA, which attained $1.6 billion and distributable cash flow peaked at $1.4 billion, the latter being an increase of 8% from the previous year.
• This significant financial performance underpins the company’s commitment to return on and return of capital with an expectation for steady growth in the partnership through strict capital discipline.
• This progress has seen MPLX yield a peer-leading return on invested capital over the past three years.

• In the first quarter of 2024, Petrobras achieved consistent cash generation, which improves its security regarding future investments, including those targeting production growth.
• A noteworthy result is the 3.7% year-on-year growth in Petrobras’ production, suggesting a steadily increasing production curve projected in the strategic plan.
• Contributing to this was the excellent performance of the FPSOs Almirante Barroso in Buzios and P-71 in Itapu, reaching peak production last year.

• LAC is a pre-revenue junior miner with aspirations to turn its lithium clay deposit at the Thacker Pass mine in Nevada into the world’s sixth-largest lithium producer by 2028, eventually rising to 25% of global supply. 
• LAC’s Thacker Pass mine is grossly uneconomic. Using the company’s own inputs, Thacker Pass has an NPV of zero at current lithium prices, which remain far above long-term averages.
• The Thacker Pass mine is a clay deposit mine. There does not appear to be a single operational lithium clay mine globally. Experts agree that extracting lithium from clay does not work using reasonable output price assumptions.

This morning, Pan African announced that it may have been in technical breach of the net asset test when it paid out dividends to shareholders in the five years from FY19–23 and also when it instigated its share buyback programme in 2022. As attested to by the fact that it took five years to be noticed, the apparent breach arises from the nexus of an arcane bit of legislation and a curious distinction between the presentation currency of the group (the US dollar) and its functional currency (the South African rand) and the effect of the depreciation of the latter against the former on the distributable versus undistributable reserves of Pan African Resources. Fortunately, there is a relatively simple remedy that involves a court sanctioned capital reduction process via a clever reserve juggling act. There will be no change to the number of Pan African shares in issue. However, it will require shareholder assent, which is the reason for PAF’s announcement. We believe it is in shareholders’ interest to vote in favour of these resolutions at its forthcoming general meeting on 10 June.

• Production from January to the end of April was 5,755 boe/d including 4,347 boe/d in Vietnam and 1,408 bbl/d in Egypt.
• This is in line with the company FY24 guidance of 5.2-6.5 mboe/d including 3.9-5.0 mbpoe/d in Vietnam and 1.3-1.5 mbbl/d in Egypt.
• The FY24 capex guidance is unchanged. The key near term news flow remains the farm-out of an interest in Blocks 125 & 126 in Vietnam. Several interested farm-in parties are awaiting confirmation of timing of a rig slot and clarity on the well cost.

• Summit Midstream previously hinted at significant news in their strategic process
• Author anticipates that this news could lead to a positive outcome and increase in stock price
• Soft Q4 earnings due to natural gas environment are seen as a limited-term concern before the upcoming announcement

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Western Midstream Partners, LP began the first quarter of 2024 with promising results, which points towards the potential for continuing growth for current and potential investors. The company posted a record-breaking adjusted EBITDA of $608 million for the quarter. This unexpected and impressive increase is largely attributed to the substantial increase in throughput in the gas segment of their business, better than expected performances in terms of gross margin per unit, and the strong performance of the water business, indicating an overall proficiently managed operation by the firm. Looking into the specifics, the Delaware Basin saw a 3% increase, DJ Basin saw a 2% rise, and the company’s other assets also had notable growth. The oil-side, however, experienced a decline by 19% on a quarter-to quarter basis due to the divestiture of certain JVs. Yet, the DJ Basin managed to rise by 7%, and the PRB Basin rose by 15%.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology. In this report, we have carried out a fundamental analysis of the historical financial statements of the company. We have added reasonable forecasts of the annualized income statement and cash flows and carried out a DCF valuation of the company using its Weighted Average Cost of Capital (WACC) to determine a forecasted share price. We have further incorporated a sensitivity analysis/ scenario analysis to understand how changes in key assumptions could impact the valuation under 3 scenarios – a base case, a bull case, and a bear case. These additional layers of analysis serve to provide a comprehensive and robust valuation, giving investors a nuanced understanding of the inherent risks and opportunities.

• Distinguished by generating approximately $220 million in operating cash flow and over $160 million in net earnings, Wheaton Precious Metals’ financial results for the first quarter of 2024 reveal the efficacy of its business model, particularly in the context of a rising commodity price environment. The company maintains strong cash operating margins and orchestrated the successful completion of an upfront payment of $450 million for the acquisition of the Platreef and Kudz Ze Kayah Streams from Orion Resource Partners. Wheaton Precious Metals’ strong liquidity position is evident through its holding of $306 million in cash, an undrawn revolving credit facility of $2 billion, and robust operating cash flows. These assets equip the company to meet all outstanding commitments and pursue promising mineral stream interests. Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology. In this report, we have carried out a fundamental analysis of the historical financial statements of the company. We have added reasonable forecasts of the annualized income statement and cash flows and carried out a DCF valuation of the company using its Weighted Average Cost of Capital (WACC) to determine a forecasted share price. We have further incorporated a sensitivity analysis/ scenario analysis to understand how changes in key assumptions could impact the valuation under 3 scenarios – a base case, a bull case, and a bear case. These additional layers of analysis serve to provide a comprehensive and robust valuation, giving investors a nuanced understanding of the inherent risks and opportunities.

• On 22 May, Anglo American rejected the last offer (0.8860) from BHP on execution risks, potential negative value impacts and additional approvals needed in South Africa. PUSU extended 29 May.
• I update my SOTP to 2938p. Copper Fair Value, in my opinion, is £17.70 per share. This contrasts with BHP’s current offer of £21.32/share for the entirety of Anglo’s rump.
• There is now a ~20.1% difference between the implied value of BHP’s offer and the share price of Anglo. The market assumes a lower likelihood of an agreed deal

• The 1Q24 production of 9,605 bbl/d, the cash position of US$22.4 mm and the debt position of US$80.6 mm had been reported previously.
• The 1Q24 operating cash flow of US$25 mm was impacted by US$5.4 mm of negative working capital movement and US$3.6 mm negative inventory movement.
• This suggests an underlying operating cash flow of US$34 mm for the period.

• Itaconix Plc’s (AIM: ITX.L, OTC: ITXXF) vision – safer chemicals in consumer goods.
• ITX makes IP protected innovative bio-polymers that replace acrylic acid and styrene based polymers (US$ 20bn market) in consumer products.
• IA polymers have commercial applications in consumer and specialty chemicals markets including detergents markets as water softeners and dispersants; odour capture markets and hair products markets for hold, texture and flexibility.

• Woodsmith project is a novel mine in the UK owned by Sirius Minerals, later acquired by Anglo.
• The project involves extracting polyhalite, a nutrient-rich mineral, from a deep underground seam.
• Local residents became shareholders in the project, with 85,000 retail shareholders, 10,000 of which were from the York area.

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• Ionic Rare Earths Ltd (ASX:IXR) is a rare earths mining explorer (Uganda) and REO magnet recycling company (Belfast, UK).
• We have excluded Belfast recycling from our valuation at this stage.
• Since ACF’s IXR Initiation note published on 05 Dec 2023 IXR’s ownership in the Makuutu project has increased to 94% up 34pp from 60%.

• Ionic Rare Earths Ltd (ASX:IXR) is a rare earths mining explorer (Uganda) and REO magnet recycling company (Belfast, UK).
• We have excluded Belfast recycling from our valuation.
• IXR appears significantly undervalued on an intrinsic and EV/M+I basis compared to its peers.

• Ionic Rare Earths Ltd (ASX:IXR) is a rare earths mining explorer (Uganda) and REO magnet recycling company (Belfast, UK).
• We have excluded Belfast recycling from our valuation at this stage.
• IXR is currently ahead of its most recently published schedule.

• Nutrien reported an adjusted EBITDA of $1.1 billion for Q1 2024, attributed to higher margins in crop inputs, increased fertiliser production, greater sales volumes, and lowered operating costs.
• The company’s Ag Solutions division reported a 15% increase per tonne margins compared to Q1 2023, supported by robust grower demand and a return to standardised margins in North America.
• In relation to operational and market developments, Nutrien increased crop protection inventory in Brazil to manage high inventory levels and reduce operating costs.

• Trigon announced it has achieved commercial production from the underground operations at its Kombat Mine.
• TM also announced production results for January through April, showing substantial improvement both in grade and produced copper in the month of April, the first month of operations from the underground.
• We are impressed by today’s results and excited for future production and financial results as TM begins its first full fiscal year of copper production and starts mining the much higher grade underground

• In the Q1 2024 earnings, Celanese Corporation addressed a range of issues including their outlook on market trends and company-specific activities.
• Starting with the macroeconomic outlook, CEO Lori Ryerkerk stated that the environment remains broadly unchanged from previous expectations.
• Notably, they have not identified any significant positives or negatives in the quarter, with destocking trends appearing to be ending and order books stabilizing.