Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Janus Analysis

Equity Bottom-Up

<ul>
<li><a href="https://www.smartkarma.com/entities/23731" target="_blank" data-smartkarma-citation="entities:23731:1">Vale SA (VALE US)</a> woes continue, facing another dam collapse</li>
<li>Forecast seaborne iron ore market deficit &gt;100Mt CY19</li>
<li>Chinese house prices up 10% y-o-y</li>
<li>Chinese Government readying substantial investment stimulus</li>
<li>Continue to positively trade large IO miners</li>
<li>5-year gold price continues to be flat</li>
<li>Global Zinc inventories declining rapidly</li>
<li>
<a href="https://www.smartkarma.com/entities/23731" target="_blank" data-smartkarma-citation="entities:23731:1">Vale SA (VALE US)</a>, <a href="https://www.smartkarma.com/entities/5424" target="_blank" data-smartkarma-citation="entities:5424:1">Bhp Billiton Ltd (Adr) (BHP US)</a>, <a href="https://www.smartkarma.com/entities/13" target="_blank" data-smartkarma-citation="entities:13:1">Rio Tinto Ltd (RIO AU),</a><a href="https://www.smartkarma.com/entities/41" target="_blank" data-smartkarma-citation="entities:41:1">Fortescue Metals (FMG AU)</a>, <a href="https://www.smartkarma.com/entities/5124" target="_blank" data-smartkarma-citation="entities:5124:1">Azumah Resources (AZM AU)</a>, <a href="https://www.smartkarma.com/entities/4111" target="_blank" data-smartkarma-citation="entities:4111:1">Peel Mining Ltd (PEX AU)</a>, <a href="https://www.smartkarma.com/entities/19210" target="_blank" data-smartkarma-citation="entities:19210:1">Breaker Resources Nl (BRB AU)</a>, Pensana Metals (ASX: PM8), Axion (ASX: AZQ), <a href="https://www.smartkarma.com/entities/19111" target="_blank" data-smartkarma-citation="entities:19111:1">Alkane Resources (ALK AU)</a>, <a href="https://www.smartkarma.com/entities/1365" target="_blank" data-smartkarma-citation="entities:1365:1">Chesser Resources (CHZ AU)</a>, <a href="https://www.smartkarma.com/entities/2971" target="_blank" data-smartkarma-citation="entities:2971:1">Hawkstone Mining (HWK AU)</a>, <a href="https://www.smartkarma.com/entities/20488" target="_blank" data-smartkarma-citation="entities:20488:1">Liontown Resources (LTR AU)</a>, <a href="https://www.smartkarma.com/entities/4650" target="_blank" data-smartkarma-citation="entities:4650:1">Genesis Minerals (GMD AU)</a>, <a href="https://www.smartkarma.com/entities/28006" target="_blank" data-smartkarma-citation="entities:28006:1">Tietto Minerals Ltd (TIE AU)</a>, <a href="https://www.smartkarma.com/entities/11138" target="_blank" data-smartkarma-citation="entities:11138:1">Hot Chili Ltd (HCH AU)</a>, <a href="https://www.smartkarma.com/entities/12048" target="_blank" data-smartkarma-citation="entities:12048:1">Newfield Resources (NWF AU)</a>, <a href="https://www.smartkarma.com/entities/7068" target="_blank" data-smartkarma-citation="entities:7068:1">Lucapa Diamond (LOM AU)</a>, <a href="https://www.smartkarma.com/entities/8807" target="_blank" data-smartkarma-citation="entities:8807:1">Theta Gold Mines (TGM AU</a>), <a href="https://www.smartkarma.com/entities/16357" target="_blank" data-smartkarma-citation="entities:16357:1">Emperor Range (ERX AU)</a>  </li>
</ul>


Vale SA (VALE US) woes continue, facing another dam collapse
Forecast seaborne iron ore market deficit &gt;100Mt CY19
Chinese house prices up 10% y-o-y
Chinese Government readying substantial investment stimulus
Continue to positively trade large IO miners
5-year gold price continues to be flat
Global Zinc inventories declining rapidly

Vale SA (VALE US), Bhp Billiton Ltd (Adr) (BHP US), Rio Tinto Ltd (RIO AU),Fortescue Metals (FMG AU), Azumah Resources (AZM AU), Peel Mining Ltd (PEX AU), Breaker Resources Nl (BRB AU), Pensana Metals (ASX: PM8), Axion (ASX: AZQ), Alkane Resources (ALK AU), Chesser Resources (CHZ AU), Hawkstone Mining (HWK AU), Liontown Resources (LTR AU), Genesis Minerals (GMD AU), Tietto Minerals Ltd (TIE AU), Hot Chili Ltd (HCH AU), Newfield Resources (NWF AU), Lucapa Diamond (LOM AU), Theta Gold Mines (TGM AU), Emperor Range (ERX AU)  


New J Hutton – Exploration Report (Weeks Ending 17/05/19)

Over 25-yrs in Global Materials & Soft Commodities

Charles Spencer

INVESTMENT VIEW:  The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe.  Chinese steel demand and pricing are forecast to be weak in 2019, yet raw material costs remain high.  We recommend staying short <a href="https://www.smartkarma.com/entities/203" target="_blank" data-smartkarma-citation="entities:203:1">Angang Steel Co Ltd (H) (347 HK)</a> shares with a PT of HK$5.

INVESTMENT VIEW:  The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe.  Chinese steel demand and pricing are forecast to be weak in 2019, yet raw material costs remain high.  We recommend staying short Angang Steel Co Ltd (H) (347 HK) shares with a PT of HK$5.

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<ul>
<li>
<a href="https://www.smartkarma.com/entities/23731" target="_blank" data-smartkarma-citation="entities:23731:1">Vale SA (VALE US)</a> have had two major fatal dam-failures in three years</li>
<li>Possible (probable?) design flaw</li>
<li>Expect all Vale's iron ore operations to be technically audited</li>
<li>Substantial Management &amp; Board changes inevitable</li>
<li>Probability that a portion of Vale's existing operations will fail engineering inspection.</li>
<li>Forecast resultant capacity constraints</li>
<li>
<a href="https://www.smartkarma.com/entities/13" target="_blank" data-smartkarma-citation="entities:13:1">Rio Tinto Ltd (RIO AU)</a>,  <a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1">Bhp Billiton (BHP AU)</a>, <a href="https://www.smartkarma.com/entities/41" target="_blank" data-smartkarma-citation="entities:41:1">Fortescue Metals (FMG AU)</a> to benefit from lost production</li>
</ul>



Vale SA (VALE US) have had two major fatal dam-failures in three years
Possible (probable?) design flaw
Expect all Vale's iron ore operations to be technically audited
Substantial Management &amp; Board changes inevitable
Probability that a portion of Vale's existing operations will fail engineering inspection.
Forecast resultant capacity constraints

Rio Tinto Ltd (RIO AU),  Bhp Billiton (BHP AU), Fortescue Metals (FMG AU) to benefit from lost production


Vale in Trouble - Expect Rio, BHP, FMG to Benefit (Flash Note)

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Event-Driven

The agreed AUD 418 million acquisition of ASX-listed copper and gold producer, <a href="https://www.smartkarma.com/entities/1358" target="_blank" data-smartkarma-citation="entities:1358:1">Avanco Resources Ltd (AVB AU)</a>, is an interesting move for no-moat-rated <a href="https://www.smartkarma.com/entities/1138" target="_blank" data-smartkarma-citation="entities:1138:1">OZ Minerals Ltd (OZL AU)</a>. The acquisition brings one small operating copper and gold mine in Brazil, an undeveloped copper/gold resource, and an undeveloped gold resource. All assets are 100% owned. In addition, Avanco also has the option to acquire 100% of a further copper/gold resource from <a href="https://www.smartkarma.com/entities/24125" target="_blank" data-smartkarma-citation="entities:24125:1">Vale SA - Pref (VALE5 BZ)</a>. Collectively, the assets…

The agreed AUD 418 million acquisition of ASX-listed copper and gold producer, Avanco Resources Ltd (AVB AU), is an interesting move for no-moat-rated OZ Minerals Ltd (OZL AU). The acquisition brings one small operating copper and gold mine in Brazil, an undeveloped copper/gold resource, and an undeveloped gold resource. All assets are 100% owned. In addition, Avanco also has the option to acquire 100% of a further copper/gold resource from Vale SA - Pref (VALE5 BZ). Collectively, the assets…

Avanco Acquisition Adds Growth but Is Value Neutral for Oz Minerals. FVE Maintained

Materials, IPO & Equity Analyst

Venkat Ramana Nandyal

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Mr Market is pricing <a href="https://www.smartkarma.com/entities/19043" target="_blank" data-smartkarma-citation="entities:19043:1">Mount Gibson Iron Ltd (MGX AU)</a> for less than its net cash and liquid assets on its balance sheet, which implies that an investor would get all the assets plus some cash for free. It sounds like a fabulous deal until one digs in a bit deeper. Investment Thesis<ol class=""><li>MGX has a strong balance sheet with cash and cash equivalents of A$507M at the end of September 2017 quarter with no debt. This cash is more than the company’s current market cap of ~A$430M, implying a negative enterprise value. On the face of it seems that Mr Market has got this one horribly wrong, but if one digs a bit deeper, Mr Market seems to doubt the ability of the company to generate free cash at the current iron ore benchmark prices. </li><li>The company reported all in group cash cost (includes opex, sustaining capex, royalties and corporate costs) of US$46/wmt in Q1/18 and expects the costs to remain in the region of A$47-52/wmt in FY18. This puts the company in the 4th quadrant of the cash cost curve amongst its peers. As the company restarts its Koolan Island operations in early 2019, Global Equity Research (GER) expect the cash costs to increase beyond this range for FY19 until the operations reach a steady state.</li><li>The current benchmark is trading at a range of US$60-70 per tonne. However, the company’s realised prices are at an average discount of 30% to the 62% Fe fines prices (benchmark prices). The company’s EBITDA margins are extremely volatile, and at these iron ore prices or any further drop from the current range, GER expects the company to report an operating loss and quickly burn cash, a scenario that is highly probable according to Mr Market’s current valuation of MGX. </li><li>The major risk to MGX earnings ability is the on schedule ramp-up of low-cost Vale's SD11 mining complex. This low-cost iron ore fines project could disrupt the market and would put pressure on benchmark iron prices to trade below US$60/t.</li></ol>

Mr Market is pricing Mount Gibson Iron Ltd (MGX AU) for less than its net cash and liquid assets on its balance sheet, which implies that an investor would get all the assets plus some cash for free. It sounds like a fabulous deal until one digs in a bit deeper. Investment ThesisMGX has a strong balance sheet with cash and cash equivalents of A$507M at the end of September 2017 quarter with no debt. This cash is more than the company’s current market cap of ~A$430M, implying a negative enterprise value. On the face of it seems that Mr Market has got this one horribly wrong, but if one digs a bit deeper, Mr Market seems to doubt the ability of the company to generate free cash at the current iron ore benchmark prices. The company reported all in group cash cost (includes opex, sustaining capex, royalties and corporate costs) of US$46/wmt in Q1/18 and expects the costs to remain in the region of A$47-52/wmt in FY18. This puts the company in the 4th quadrant of the cash cost curve amongst its peers. As the company restarts its Koolan Island operations in early 2019, Global Equity Research (GER) expect the cash costs to increase beyond this range for FY19 until the operations reach a steady state.The current benchmark is trading at a range of US$60-70 per tonne. However, the company’s realised prices are at an average discount of 30% to the 62% Fe fines prices (benchmark prices). The company’s EBITDA margins are extremely volatile, and at these iron ore prices or any further drop from the current range, GER expects the company to report an operating loss and quickly burn cash, a scenario that is highly probable according to Mr Market’s current valuation of MGX. The major risk to MGX earnings ability is the on schedule ramp-up of low-cost Vale's SD11 mining complex. This low-cost iron ore fines project could disrupt the market and would put pressure on benchmark iron prices to trade below US$60/t.

Brazil

Vale S.A. is a Brazilian multinational corporation primarily engaged in metals and mining, and one of the largest logistics operators in Brazil. It is a leading global producer of iron ore and nickel, also producing copper, manganese, ferroalloys, and other base metals. The company operates integrated logistics systems including railways, maritime terminals, and ports. Headquartered in Rio de Janeiro, Brazil, the company was founded in 1942.

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Vale (VALE3 BR)

New J Hutton – Exploration Report (Weeks Ending 17/05/19)

Vale SA (VALE US) woes continue, facing another dam collapse Forecast seaborne iron ore market deficit >100Mt CY19 Chinese house prices up 10%...

Gaius King

Angang Steel: Headwinds Intensify

INVESTMENT VIEW: The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe. Chinese steel...

Charles Spencer

Vale in Trouble - Expect Rio, BHP, FMG to Benefit (Flash Note)

Vale SA (VALE US) have had two major fatal dam-failures in three years Possible (probable?) design flaw Expect all Vale's iron ore operations to...

Boost Research

Avanco Acquisition Adds Growth but Is Value Neutral for Oz Minerals. FVE Maintained

The agreed AUD 418 million acquisition of ASX-listed copper and gold producer, Avanco Resources Ltd (AVB AU), is an interesting move for...

Morningstar, Inc.

MGX: "Cash Is King" – Not Always

Mr Market is pricing Mount Gibson Iron Ltd (MGX AU) for less than its net cash and liquid assets on its balance sheet, which implies that an...

Venkat Ramana Nandyal

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