Daily Brief Energy/Materials: Rio Tinto Ltd, Vedanta Resources, Shell PLC, Iron Ore, Omai Gold Mines, Nabaltec AG, Arrow Exploration , Toagosei Co Ltd, Kohsoku Corp, Pan African Resources and more

• Just shy of three years ago, BHP (BHP AU) announced the unification of its dual-headed corporate structure to make BHP “simpler and more agile”.
• Collapsing DLCs/share-classes was all the rage back then. The prior year, Unilever (UNA NA) collapsed its DLC; and Royal Dutch Shell  unified its A and B lines in 2021. 
• Rio (RIO AU/LN) is one of only a handful of remaining DLCs. Renewed investor calls to unwind the DLC and the recent UK’s listing regime reform necessitate a rethink.

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.

• Vedanta Resources

• Shell forecasts a decline in upstream production, gas price realisations, and refining margins. Its QoQ Revenue & EPS are expected to drop 4.3% and 21.7%, respectively.
• Shell anticipates Q2 post-tax impairments of USD 1.5 to USD 2 billion due to halting a biofuels plant in Rotterdam and divesting its Singapore refinery.
• On a brighter note, Shell anticipates higher chemical margins, increased marketing sales volume, and improved refinery utilisation rates in Q2.

• Weakness Persists: Iron ore prices hovered at critical support level of $100/ton on consistent ample supply & weak demand driven by China’s slowing manufacturing sector.
• Options Market Shift: Despite overall bearish sentiment, the options market showed increased call activity, particularly for front-month expiries, indicating potential short-term bullish speculation.
• Production & Supply Outlook: Major producers like Vale & Rio Tinto are expected to increase iron ore output, contributing to a bearish outlook due to ample supply in global markets.

• What you need to know: • The Company provided an exploration update on the Omai Gold Project with development goals laid out in this release.
• • Since our last note, Omai raised $13M in a private placement which closed on June 20th and sets the Company up for the next two years of project development.
• • On July 2nd, Omai commenced a 10,000m drill program with the goal of expanding the overall mine plan (by way of resource growth) and began many of the baseline studies required for permitting and engineering.

Nabaltec is a leading global producer of functional fillers and specialty alumina, serving a wide range of growing end-uses including halogen-free flame retardants and electric vehicle (EV) battery separators. The company’s strong product focus, technical product support and customer relationships are key differentiators. It has a healthy balance sheet and is able to exploit potential growth in the high-growth boehmite and data centre markets. Nabaltec trades at a 47% discount to peers on FY24e EV/EBITDA and a 32% discount on FY24e P/E. We initiate our coverage with a valuation of €29.9 per share, 93% above the current share price.

• • The first CN Horizontal well (CNB HZ-1) is currently flowing at a rate of 2.22 mbbl/d (oil) with an IP30 rate of 2.65 mbbl/d (1.32 mbbl/d net).
• • The well is performing better than expected.
• We forecast IP90 rate of only 1.5 mbbl/d.

• Revenue for Q2 2024 was JPY81.6bn (+6.0% YoY), with operating profit at JPY7.3bn (+54.3% YoY).
• Full-year FY12/24 forecast revised upward: revenue JPY170.0bn (+6.7% YoY), operating profit JPY15.5bn (+24.0% YoY).
• Interim and year-end dividends increased, projecting a full-year dividend of JPY60.0 per share, up JPY7.0 YoY.

• Revenue for Q1 FY03/25 increased by 3.2% YoY to JPY26.8bn, with a gross profit of JPY5.2bn.
• Operating profit for Q1 FY03/25 decreased by 3.2% YoY to JPY956mn, and recurring profit fell by 2.9% YoY to JPY1.0bn.
• SG&A expenses for Q1 FY03/25 rose by JPY182mn YoY to JPY4.3bn, driven by increases in salaries, freight, and bonuses.

On 29 July, Pan African Resources (PAF) announced it had produced 186,039oz gold in FY24 at an all-in sustaining cost (AISC) of US$1,350/oz. This was within the previously guided range of 186–190koz at an AISC of US$1,325–1,350/oz and was 212oz (0.1%) above our expectation of 185,827oz. Production guidance for FY25 was reiterated at 215–225koz (cf Edison’s unchanged and relatively conservative forecast of 216.6koz). Our financial forecasts for FY24 remain little changed as a result of PAF’s announcement. However, we have increased our forecasts for FY25 to reflect the gold price remaining high into H2 CY24.