Brief Australia: Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note and more

In this briefing:

1. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note
2. New J Hutton – Exploration Report (Weeks Ending 22/03/22)
3. RBNZ Pressures the RBA to Adopt Easing Bias
4. Lynas (LYC AU): Wesfarmers’ Unattractive Bid
5. ESR Cayman Pre-IPO- First Stab at Valuation

1. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.

Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.

In the detailed note below we

• discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods –  that are associated with carbon emissions. 
• analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
• highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
• present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 

2. New J Hutton – Exploration Report (Weeks Ending 22/03/22)

• Uranium Price has fallen 7% over the past two months
• Actively looking for uranium short positions
• Provide summarised watch list
• Wisdom from Samuel Longhorne Clemens
• Yellow Cake PLC (YCA LN), Berkeley Energy (BKY AU), Cameco Corp (CCO CN), Kazatomprom Natsionalnaya At (KZAP KZ), Jangada Mines PLC (JAN LN), Europa Metals Ltd (EUZ LN), Buxton Resources (BUX AU), Musgrave Minerals (MGV AU), Myanmar Metals (MYL AU), Archer Exploration (AXE AU), Canyon Resources (CAY AU), Catalyst Metals (CYL AU), Core Exploration (CXO AU), Exore Resources (ASX: ERX), Stavely Minerals (SVY AU), Tietto Minerals Ltd (TIE AU), Horizonte Minerals PLC (HZM LN), Bellevue Gold (ASX: BGL), Allegiance Coal (AHQ AU), First Au (ASX: FAU), Base Resources (BSE AU), Breaker Resources Nl (BRB AU)  

3. RBNZ Pressures the RBA to Adopt Easing Bias

New Zealand rates plunged and the NZD dropped relatively sharply after the RBNZ said the next move in rates was more likely to be a cut.  The RBNZ appeared to be significantly influenced by the policy easing abroad and upward pressure on the NZD.

The RBA shifted from a mild tightening bias to a neutral bias in February.  Since then it should be much less sure that current policy settings will return inflation to its target.  We expect them also to acknowledge that the balance of risks to their forecasts have shifted to the downside.

4. Lynas (LYC AU): Wesfarmers’ Unattractive Bid

Wesfarmers Ltd (WES AU) launched a conditional, non-binding indicative proposal for Lynas Corp Ltd (LYC AU), one of the world’s only rare earths suppliers based outside China. Wesfarmers’ proposal of A$2.25 cash per share values Lynas at A$1.5 billion. Lynas’ share price jumped 35% to A$2.10 before going into a trading halt.

5. ESR Cayman Pre-IPO- First Stab at Valuation

ESR Cayman (ESR HK) aims to raise up to US$1.5bn in its planned Hong Kong listing, as per media reports. The company is backed by Warburg Pincus and counts APG, the Netherlands’ largest pension provider, as one of its main investors.

In my earlier insights: I touched upon the company’s business model and provided an overview of its operations, ESR Cayman Pre-IPO – A Giant in the Making and talk about the financials and the drivers for each of the three segments, ESR Cayman Pre-IPO – Earnings and Segment Analysis.

In this insight, I’ll look at valuing each of the segments.