Daily Brief Energy/Materials: OZ Minerals Ltd, Medco Energi, Cleveland-Cliffs Inc and more

• Copper is widely recognised to be in somewhat short supply, and EV/electrification would increase demand going forward (though slower Chinese homebuilding would soften it).
• A number of developments suggest a further squeeze in prices could be near and copper price strength along with AUD weakness makes an AUD-denominated OZL Takeover Price easier to raise.
• Short-Term positioning and longer-term supply constraints are currently battling for near-term import, but medium-term, there’s no escaping the imbalance. Looks like a buy now.

Medco Energi has launched a cash tender offer for up to USD 250 mn of three USD bonds. If the tender is successful, we expect gross debt to be reduced by USD 100 mn, the debt maturity profile to be lengthened and interest expense to decline. Tendering the bonds would make sense if noteholders require liquidity. Otherwise, they could consider holding the notes given the improving credit fundamentals.

• With Cleveland-Cliffs’ results just around the corner, it is to be seen how the management has progressed with their execution in terms of profitability and their attempts towards free cash-flow-driven reduction in debt.
• However, higher costs and inflation led to a drop in margins and it had missed out on earnings.
• The gross inventory values in terms of the working capital increased in the last quarter because of higher costs, and the overall steel inventory volumes decreased.