Daily Brief Energy/Materials: T&K Toka Co Ltd, Orecorp Ltd, Sovereign Metals, Fortescue Metals, ADX Energy Ltd, Natural Gas and more

• I expected a blandiloquent but bletcherous bump from Bain. Discussed in T&K TOKA (4636 JP): Expect ANOTHER Blandiloquent But Bletcherous Bump From Bain. We got bletcherous. 
• But at a mere ¥10 uplift to ¥1,410, we did not get blandiloquent. That’s insulting. But as suggested in the first piece, there was NAVF Risk. And we got it. 
• NAVF agreed to sell its 24+% to Bain at ¥1,410 in return for being able to buy 15% of the bidco, fully-levered (i.e. they roll in at minimal cost). 

• In OreCorp: Silvercorp Switches To Off-Market Bid, after Silvercorp Metals (SVM CN) switched to an off-market Offer for Orecorp Ltd (ORR AU), I expected Perseus Mining (PRU AU) to counter. 
• Orecorp announced this morning Perseus (with 19.9% of shares out) has pitched an all-cash Offer of A$0.55/share, primarily conditional on getting to 50.1%
• Orecorp has responded by saying Perseus Offer is not superior to Silvercorp cash/scrip terms. Perhaps it’s Orecorp’s way of (temporarily) skirting the break fee and letting the market decide.

• T&K Toka Co Ltd (4636 JP) has recommended Bain’s revised tender offer of JPY1,410 per share, a highly disappointing 0.7% premium to the previous JPY1,400 offer. 
• Bain’s marginal bump was due to securing Dalton’s support through the Nichii Gakkan Co (9792 JP) playbook. Dalton will tender its shares and make a 15% re-investment in the offeror. 
• Shareholders representing a 60.82% ownership ratio, including share options, will accept, paving the way to success. With shares trading 4.7% above terms, it is time to move on. 

• Perseus Mining (PRU AU)’s competing all-cash takeover offer for Orecorp Ltd (ORR AU) is A$0.55, a 4.0% premium to the implied value of the Silvercorp Metals (SVM CN) off-market takeover offer. 
• The Board opines that the PRU offer is not superior. Since announcing the revised SVM scheme on 23 November, the PRU offer has averaged 3.0% lower than the SVM offer.
• The SVM offer, which closes on 23 February, has struggled to gain traction. PRU has the balance sheet to sweeten its offer and gain shareholder traction.   

Key points (machine generated)

• Apple’s focus on carbon-neutral products and use of titanium in iPhone 15 Pro is driving interest in titanium resources.
• Sovereign Metals’ discovery of the world’s largest undeveloped natural rutile deposit has attracted the attention of Rio Tinto, which recently became the largest shareholder in the company.
• Titanium is considered a critical material due to supply shortages and China-controlled supply chains, with its use in Apple products highlighting its growing importance. Investment in Sovereign Metals offers an interesting opportunity, especially given the lack of upcoming funding requirements and a discount to Rio Tinto’s entry price.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• In the world of 8-10% dividend-yielding commodities, Fortescue Metals (FMG AU) almost makes the cut. We would wait for a better entry point here despite iron ore strength.
• We are also mindful of the risks associated with capex in the green energy space to achieve zero emissions and ramp costs with the recent production increase.
• We believe numbers are at par, trading at 9.6x PE on the current spot price (130 USD/ton) with a 7% dividend yield ( assuming a 65% payout ratio). 

• A rig is expected to be mobilised to the high impact Welchau-1 drilling location during the last week of January.
• Welchau gross prospective resources have been independently estimated at 365 to1,128 bcf (ADX’s internal estimates: 212 to1,631 bcf).
• During 4Q24, ADX plans to drill the IRR-1 gas prospect with 38 bcf gross prospective resources or the LICHT prospect.

• In a soft-landing economic environment, history suggests that commodity indexes stay stable around the first rate cut then trend higher six months after.
• Historically, industrial metals tend to lag energy by several months.
• By contrast, prices of precious metals, especially gold, generally rise six months after the first rate cut then hit a temporary plateau —something we saw even during the extremes of the 2008 financial crisis and the recent pandemic.