Energy & Materials Sector

• On the 8th April, Azure Minerals (AZS AU) shareholders overwhelmingly approved the Sociedad Quimica y Minera (SQM US)/Gina Rhinehart’s Hancock transaction. Shares promptly closed down 7% on regulatory approval fears.
• Those fears are unwarranted. China’s Tianqi Lithium would indirectly own just ~11% in Azure post-deal.  China has recently lifted anti-dumping tariffs on a range of Aussie products. FIRB won’t block.
• An expected approval may have spurred Gina to buy more shares in Lynas (LYC AU). Why buy now if FIRB dings Azure; that outcome would push the whole sector lower.

• HighPeak has pivoted its FY24 development plan to concentrate on free cash flow generation from growth.
• Our updated adjusted EBITDA and free cash flow estimates, incorporating NYMEX reference prices of $79.19/bbl for oil and $2.33/MMBtu for natural gas, are $858 million and $168 million, respectively.
• FY23 free cash flow was negative $271 million.

• What you need to know: • JEV announced that it has commenced a strategic process to explore the spin-off of its hydrogen portfolio.
• We view this as a strong positive for shareholders.
• • Over the past month, JEV also closed a $2.2M private placement and amended the terms on its debentures, setting up the Company for this transaction.

• OPT has entered into a teaming agreement with a major international defense contractor to offer OPT’s Merrows suite of solutions in specific international regions.
• The partnership aims to improve maritime domain awareness through OPT’s Maritime Domain Awareness Solution (MDAS).
• The agreement grants the defense contractor exclusive rights to sell MDAS in certain areas. 

• Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer. 
• That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence. 
• News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been. 

• Lynas Corp Ltd (LYC AU) is the proverbial Aussie battler. Post the 2018 general elections, the new Malaysian government put Lynas on notice it may halt it rare-earth operations. 
• Since then, Lynas’ Malaysian facility, which cuts into China’s near-monopoly on processing elements for defense/aerospace/EV/electronics industries, has (mostly) operated without substantial disruptions. Profit peaked in FY22; but has since rolled-over.
• Gina Rhinehart’s Hancock has now disclosed a 5.82% stake in Lynas; having disclosed a 5.3% stake in MP Materials (MP US) earlier this month. Lynas confirmed discussions with MPM in February.

• The tendering price is ₩8,750, roughly 7% higher than the last close. However, Affinity’s commitment makes this event noteworthy.
• Lock&Lock requires Affinity to target 30%. To reach 95%, securing 25% is needed, much higher than SsangYong C&E, indicating potential price volatility.
• A second public offering is likely due to the widening gap between the ownership threshold and actual acquisition percentage in Lock&Lock. This could impact prices significantly during the tendering period.

• Sherwin-Williams Company, a global leader in the paint and coatings industry, reported a promising review of their fourth quarter 2023 results and outlook for the first quarter and full year of 2024.
• The company has experienced positive growth, with sales growing 4.1% to $23.1 billion and adjusted earnings per share growing 18.6% to $10.35 a share.
• Sherwin-Williams demonstrated robust financial performance during the fourth quarter that has resulted in a record year for the company.

• RPM International’s third-quarter fiscal 2024 results marked their ninth consecutive quarter of record sales and earnings before interest and taxes (EBIT) results, driven by the company’s operational improvement initiatives – the MAP 2025.
• This positive momentum was achieved, notwithstanding lower sales volumes in the Consumer and Specialty Products segments.
• Performance Coatings Group and Construction Products Group led sales growth, benefiting from strong demand from infrastructure and building projects.

• With completion, commissioning and a contract secured, first gas is just around the bend.
• Critically, with the company on the cusp of first gas, it holds first mover advantage over peer group projects where first gas may well be 2026 or later.
• We assign a NAV of $198m or $0.72/share (down from $0.74/share due to spot gas price adjustment) to GAS against a reference share price of $0.15/share.

Alongside Albemarle and SQM, Arcadium Lithium is the third largest producer of downstream lithium chemicals outside China, capturing the full value chain from lithium resource to battery-grade lithium chemicals. The company has strong exposure to high value-add lithium products and boasts a pipeline of advanced development projects that could potentially more than triple its lithium capacity by 2030. Thanks to its established low-cost asset base and cash flow-generative business, Arcadium should be one of the main beneficiaries of the current cyclical lithium market downturn. Coupled with its strong growth profile, the company is well-positioned to capitalise on the inevitable recovery in lithium demand, driven by the secular decarbonisation trends.

• TotalEnergies’s latest earnings indicates a strong balance.
• By executing their two-pillar strategy consistently, the firm has demonstrated a significant increase in cash flows compared to the previous year, offering a capacity for growth in energy production.
• TotalEnergies recorded an adjusted net income shareholder share of $23 billion and an IFRS net income above $21 billion in 2023.

• Kinder Morgan’s fourth-quarter earnings conference call highlighted the company’s robust financial outlook for 2024.
• Richard Kinder, Executive Chairman of Kinder Morgan, projected substantial growth in EBITDA, EPS, and DCF per share for the year ahead, supported by exceptional growth expected in natural gas production and demand, primarily driven by LNG exports and exports to Mexico.
• The company’s strategic expansion of its Natural Gas segment through CapEx and acquisitions reportedly contributed significantly to its bottom-line performance.

• MPLX revealed their fourth quarter results for fiscal 2023, accompanied by an updated outlook for 2024.
• Moreover, the commentary also discussed recent growth executed in strategic priorities as well as minor potential acquisitions.
• In terms of 2023 results, MPLX had a strong year throughout, successfully executing its strategic priorities.

• In the mid-late teens, four refinery groups merged to create two refinery groups – JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
• When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
• That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.

• We’ve discussed for months that we’ll need to see SPX and NDX (QQQ) close below their 20-day MAs/21-dayEMAs for more than 2-3 consecutive days in order to get more cautious.
• Today (Tuesday) marks 3 consecutive days as the DXY climbs to test major $106 resistance, and amid 10- and 30-year Treasury yields breaking above long-term resistances. Caution is warranted.
• Still, in order for there to be a meaningful pullback, important 2-month supports that are currently being tested would need to break, including 4983-5050 on SPX and $425-$433 on QQQ.

• Based on the fourth-quarter 2023 earnings, FMC Corporation’s performance suggests a mixed investment climate.
• Although the company’s plan largely revolves around elements they manage, such as NPI sales and restructuring initiatives, the transition of the crop chemicals market implies a challenging year ahead.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• In the Second Quarter Fiscal 2024 Earnings Conference Call, Bill.com recorded robust profitable growth despite a challenging macro environment as small and medium-sized businesses (SMBs) continue to manage their spending cautiously.
• The company reported year-over-year revenue growth of 22%, non-GAAP net income growth of 48%, and a non-GAAP net income margin of 23%.
• It sees prospects for further growth once SMBs begin spending for expansion.

• Energy Transfer LP reported a transformative year, marking significant changes across the organization and its global workforce of 22,000.
• The company successfully established itself as an independent public entity while maintaining a trajectory of profitable growth.
• The year saw a 5% organic growth, evenly distributed across all business segments and geographic regions, highlighting its broad-based growth capabilities.

• Equinor delivered strong results for the third quarter, with adjusted earnings of $8 billion ($2.7 billion after tax) despite lower prices than in the previous year, indicating the company’s stability in market fluctuations.
• However, net operating income was $7.5 billion and net income was $2.5 billion, lower than adjusted earnings.
• The company is on track to deliver promising cash flows of around $20 billion annually till 2030, exhibiting robust revenue growth.

• Coterra Energy displayed excellent financial results, exceeding oil, natural gas, and BOE (barrels of oil equivalent) guidance for Q4 with below capital guide.
• Oil volumes demonstrated year-over-year growth of 10%, while the company declared a 5% growth for the BOE. The company’s capital is expected to vary between $1.75 billion to $1.95 billion for 2024, investing approximately 60% of projected cash flow.
• In terms of geographic investment, focus will be placed on boosting investment in the Permian and Anadarko basins while retrenching in the Marcellus.

• SDRL enters the second quarter with drill ships undergoing special surveys and day rates slowly creeping higher. 
• The drill ship market has experienced an increase in day rates on the expectation stacked ships eventually become available. We do not believe this will ever be the case
• We are leaving our 2024 earnings model unchanged and raising our 2025 adjusted EBITDA outlook to $677 million from $615 million

• Sealed Air Corporation, in its Q4 2023 earnings, reported sales of $1.4 billion and an adjusted EBITDA of $274 million.
• The results align with the company’s projection, reflecting the ongoing challenges from fluctuating protein cycles and downtrading in the food division as well as a reassured seasonal pickup in the protective segment.
• For the fiscal year of 2023, Sealed Air posted sales of $5.5 billion, slightly over the midpoint of its guidance, along with an adjusted EBITDA of $1.1 billion.

• Tietto Minerals Ltd (TIE AU) has disclosed a revised conditional proposal from Zhaojin Mining Industry H (1818 HK) at A$0.68 per share, a 17.2% premium to the previous offer of A$0.58.
• The offer is conditional on a 50.1% minimum acceptance condition (which can be waived). The offer is declared best and final. 
• Despite the bump, the offer is below the IE’s valuation range of A$0.79 to A$0.93 per share. The IE’s valuation range would be around 25% higher at current gold prices. 

• EDG announced its 2024 exploration program at the Reliance Gold Project.
• Plans include up to 10,000m of diamond drilling, Geochemical sampling, and geotechnical, structural, mineralogical and metallurgical studies, as well as other initiatives.
• Work is expected to commence in early May, well ahead of Golden Triangle peers.

• • The South Lahan area on Block 58 is estimated to hold 55-523 mmbl prospective resources (P90-P10 case) with a mean case of 251.8 mmbbl prospective resources across six prospects in the Ara Carbonate.
• • Combined with the previously disclosed prospective resources of the Fahd area in the north-eastern part of Block 58, Tethys Oil’s unrisked recoverable prospective resources on the block are estimated to be 435.9 mmbbl (Pmean).
• • The geological chance of success ranges from 6% to 11% for the six new prospects.

• The Nong Yao-13 exploration well in the new Nong Yao D area that was targeting multiple zones has encountered >30 feet of new oil play across several new shallow intervals which have not been produced elsewhere on the concession.
• These reservoirs are believed to be recurring across the Nong Yao D area.
• The drilling result confirms that oil has successfully migrated into this area of the block (a factor that was seen to be a risk in the Nong Yao D area) and open the opportunity for further appraisal and exploration drilling in the vicinity to derisk sufficient volumes to justify a future development.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), QV Equities Ltd (QVE AU), Silver Lake Resources (SLR AU), Azure Minerals (AZS AU), China TCM. 
• Lowest spreads: Tietto Minerals Ltd (TIE AU), Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU). 

• A shares were down on the week, not maintaining the month-end bounce after the long weekend. H-shares were mixed. HSCEI was slightly up. 
• Net SOUTHBOUND buying was +HK23bn. SOUTHBOUND ended its consecutive post-CNY daily net buy streak on 25 March, then started a new one. No net sell days since.
• This week saw a LOT of news. State Council Nine Points. CSRC draft regs and legislative work plan. Ratings agency action. Lots of movement. None of it hugely positive.

• On the 30 October 2023, Chinese gold producer Zhaojin Mining Industry (1818 HK) pitched a non-binding off-market Offer for Aussie-listed West African gold miner Tietto Minerals (TIE AU).
• Zhaojin held 7.02% of shares out, and sought 50.1%. Tietto subsequently rejected the A$0.58/share cash proposal. The IE backed out a fair value range of A$0.793-A$0.927/share.
• Zhaojin has now announced it has secured all Chinese regulatory approvals; and that Côte d’Ivoire government approval is not required. Plus Zhaojin bumped terms to A$0.68/share – best and final. 

• We provide a comprehensive introduction to the iron ore sector, covering the drivers and a view of the commodity in the short run. 
• We look at eleven listed names in the space ( from large-cap miners to the juniors deriving a vast majority of their revenues from ore) and list our favorite miners.
• We like Vale (VALE US) for its capital return in large caps, Kumba Iron Ore (KIO SJ)  in midcaps, and Mount Gibson Iron (MGX AU)  in junior miners. 

• Ercros (ECR SM) ‘s advisors will seek an improvement in Bondalti’s €3.6/share offer, which comes amidst a sharp decline in EBITDA compared to 2022, and launched at the bottom of the cycle.
• An improved offer price of €4.4/share, a 22% increase, would represent 6x EV/25e EBITDA, 11.3x 25e P/E, and thus could gain support from the Board.
• Gross spread is 1.25%. Considering the potential for an improved offer price, I’d be long.

• ETU’s land package remains one of the largest (681km2) and most prospective in Ontario, sitting in a top mining jurisdiction in the world spanning 80km along the Porcupine-Destor Fault hosting >100Moz Au.
• The Company has laid out its 2024 exploration plans, highlighting a new focus to high-grade gold showings along the eastern extent of the Hawkins zone – a high probability target for resource growth.
• ETU remains to be one of the cheapest stocks and hosts one of the largest land packages amongst junior explorers.

• After Boral (BLD AU) rejected Seven Group (SVW AU)‘s cash/scrip Offer, Seven slammed the Independent Expert’s report, calling the Target Statement “unbalanced, selective and risks fundamentally misleading Boral minority shareholders“.
• Seven has now waived certain tendering thresholds, increasing the cash terms to A$1.70/share from A$1.50/share. Boral will also pay a fully-franked dividend of A$0.26/share, providing A$0.11/share of franking credits. 
• The IE now considers the Offer to be reasonable. Boral’s board recommends shareholders to accept. This is done.

• EIA raised its crude oil price forecast for 2024 and 2025, cites higher global oil consumption outlook and concerns over geopolitical tensions.
• The agency also increased global liquid fuels production outlook for 2024 compared to the previous month.
• Increased forecast on US retail gasoline prices relative to March STEO, expects lower gasoline inventories and higher net exports drive price rise.

• ADF Group reported Q4 & FY24 financial results this morning that beat our expectations across the board.
• For Q4, revenue came in at $88.4M (+72% YoY) vs. our estimate of $77.1M and EBITDA came in at $15.5M (+164% YoY) vs. our estimate of $13.6M.
• FY24 marked another stellar year for ADF as it benefits from infrastructure spending across North America and the automation capex program at its Terrebonne facility.

• GeoPark has submitted a binding offer to acquire a non-operated Working Interest in unconventional blocks in the Neuquen Basin in Argentina.
• The offer has been accepted by the seller and the parties are working on an exclusive basis towards execution of definitive agreements.
• The completion of the transaction could occur in 3Q24 

• 1Q24 production of 18,518 bbl/d was in line with our expectations.
• Production over the last 30 days was 20.5 mbbl/d with the recently drilled 17H well, now on pump, delivering 4,500 bbl/d.
• This bodes very well for 2Q24 production given that the 18H well is expected to commence production in May.

• Copper supply facing headwinds with a shortage of copper ore which has led to spiraling copper refining margins.
• Copper futures trading sharply higher than cash prices and term structure for copper futures has steepened. 
• Gold to copper ratio can be used to express a bullish view on copper prices with relatively lower risk compared to a straightforward long copper position. 

• The bullish outlook we initiated in early November 2023 remains intact. The SPX and QQQ still refuse to close below their 20-day MAs/21-day EMAs for more than 2-3 consecutive days.
• Even if/when they do, important supports are close by, including 4983-5050 on the S&P 500 and $425-$433 on QQQ (gap supports from 2/22/24). Anything above 4800 SPX is a buy.
• We continue to get an ever-increasing number of global indexes/Sectors with long-term breakouts, the latest being the MSCI Emerging Market and Frontier indexes. Clearly risk-on behavior.

• The farm-out transaction with Energean has now completed.
• Chariot has received the US$10 mm cash upfront payment and retains 30% of in the Lixus licence (where the Anchois project is located) and 37.5% of the Rissana licence, offshore Morocco.
• A rig contract has also been signed with Stena Drilling to drill the high impact Anchois-East appraisal and development well in 3Q24.

• 1Q24 production was 21.9 mbbl/d in line with our expectations.
• Production at the end of March was ~23 mbbl/d.
• Net cash of US$193.6 mm (US$176.3 mm unrestricted) was high given that the company sold only 1.8 mmbbl in 1Q24 with inventory building-up ~0.21 mmbbl vs YE23 to 0.9 mmbbl.

• With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
• The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
• There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.

• Investics Research will initiate coverage of the materials sector in April 2024, starting with iron ore and then gold, coal, and steel in subsequent months (in that order).
• The areas of coverage on asset classes will encompass the underlying commodity and the associated equities. 
• Areas of differentiation would include in-depth coverage of all equities (small/mid and large cap) and actionable tactical ideas on the commodity.

• OceanaGold Philippines (OGCP000D PM) is looking to raise up to US$140m in its Philippines IPO.
• OceanaGold Philippines (OGPI) is a producer of gold and copper in the Philippines, and a subsidiary of OceanaGold Corporation, a Toronto Stock Exchange (TSX) listed gold mining and exploration company.
• In this note, we talk about the company’s historical performance and share our quick thoughts on valuation.

• Alpha Metallurgical Resources, a supplier of metallurgical products for the steel industry, closed its fourth quarter with adjusted EBITDA of $266 million and achieved over $1 billion in adjusted EBITDA for the year.
• This is the second consecutive year in which the company attained such a milestone despite facing considerable challenges during the year.
• Alpha highlighted the robustness of its management approach which included proactive identification of issues and proactive response plans that ensured minimal impact on performance.

• West Fraser produces lumber for the construction industry and also manufactures wood-based products such as engineered wood, panel products, and pulp and paper products.
• In the fourth quarter of 2023, the company posted mixed results across its business segments.
• Its North American engineered wood business segment displayed strength while soft demand affected its North American lumber products.

• Israel Chemicals Ltd.
• (ICL) had faced various operational challenges during the fourth quarter mostly due to the war in Israel.
• Despite these obstacles, they successfully maintained good production levels.

• This is our first report on Eagle Materials, a U.S.-based producer and distributor of building materials.
• The company reported record revenues in its third quarter for the fiscal year 2024, marking its robust financial performance and continuing to maintain and widen its low-cost producer strategy.
• With revenues reaching $559 million, up 9%, and adjustable earnings per share (EPS) rising 16% to $3.72, Eagle Materials marked another successful quarter.

• Kinross Gold reported a robust fiscal year 2023, where the company met its targets and is well-positioned for the year ahead.
• Kinross Gold’s operations are performing well, as are its projects, which are aligning with budget and timing.
• The company is generating substantial free cash flow and is successfully de-levering its balance sheet.

• NewMarket Corporation, a petroleum additives company, recently reported their full-year and fourth-quarter results for 2023.
• The company’s net income for the fourth quarter of 2023 was $80 million, a decrease from the previous year’s fourth quarter net income of $91 million.
• This decrease in operating profit was primarily due to higher operating costs and lower shipments partially offset by lower raw material costs.

• Axalta Coating Systems Ltd.
• reported Q4 net sales increasing by 5% year-over-year, amounting to $1.3 billion with contributions from both of its key business segments – Mobility Coatings and Performance Coatings.
• This increase is further evidence of the impressive quarterly performance that Axalta has had, which includes a seventh consecutive quarter of mobility volumes growth, indicating the recovery of the automotive industry and successful reshaping of the company’s portfolio.

• Azure Minerals (AZS AU) shareholders have overwhelmingly approved the dual-track bid from Sociedad Quimica y Minera de Chile (SQM US) and Hancock. The scheme offer is A$3.70 per share.
• The shares fell 7%, seemingly due to concerns about FIRB approval sparked by FIRB’s request for an extension on 3 April and today’s AFR article on China’s Australian lithium holdings. 
• FIRB approval should be forthcoming due to Tianqi Lithium (9696 HK) small indirect interest in Andover, Lithium Power International (LPI AU) precedent, and SQM and Tianqi’s strained relationship. 

• Nearing the halfway mark in the review period, we see 3 potential changes for the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) at the June rebalance.
• Passive trackers will need to buy between 1.2-4.5 days of ADV on the inclusions and sell 0.9-1.3 days of ADV on the deletions.
• Berli Jucker (BJC TB) continues to be a close add on liquidity while Gulf Energy Development (GULF TB) and Intouch Holdings (INTUCH TB) continue to be close deletes.

• The Permanent Production Facility (PPF), with a capacity of 3,000 bbl/d of liquids, has been commissioned and the Anshof-3 well has recommenced production at a rate of 134 bbl/d with no water.
• The operation has been undertaken in line with expectations and within budget.
• The oil production rate at Anshof-3 is 16% above the rate prior to shut-in.