Energy & Materials Sector

• MBK is watching for a 1 million share trading volume, as that may prompt neutral institutional investors to sell rather than participate in the tender, triggering a price hike.
• MBK may raise the tender price to ₩900,000, a 35% jump, with a local pension fund CIO suggesting it’s the sweet spot for participation.
• MBK believes securing the minimum target would give them 44% voting rights, enough to push their proposals, indicating they’ll go all-in for that 7% stake in this first attempt.

• With increasing market volatility, base metals continue their rocky weekly performance. Copper was up marginally maintaining a level over 9000 USD/ton.
• Copper inventories declined at the exchanges, with ~428k tons combined at Comex, LME, and Shanghai, down almost 9% in the last two weeks.
• Read our recent initiation on Antofagasta PLC (ANTO LN), contrasting it with Southern Copper (SCCO US) titled Antofagasta (ANTO LN): An Initiation on a Mid-Sized Copper Miner. 

• Iron underperformed the commodity complex, falling 1.2% WoW, vs the average complex performance of 3% WoW. 
• PBOC rate cuts have yet to spur borrowing significantly. Despite the seasonal uptick, loan growth has trended negatively.  
• We remain cautious till China shows any sign of a pick-up in demand. Indicators like mill margins and property/auto demand continue to be uninspiring. 

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.

• Adaro Energy
• Medco Energi
• Meituan

• ATI’s earnings for the second quarter of 2024 have underlined robust performance with several notable achievements and positive guidance updates, along with particular areas of focus and needed improvement.
• These highlights capture both the company’s current strengths and the challenges it navigates in a competitive and evolving market.
• 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.

• On the 13th September, MBK joined Young Poong (000670 KS) in seeking control of Korea Zinc (010130 KS) via Partial Tender Offers for KZ and Young Poong Precision (036560 KS).
• This situation has been canvassed by analysts here at Smartkarma; with increasing expectation the Choi family makes a counterbid.
• This insight analyses the fair value of YPP. No matter how you slice it, the Offer Price is punchy. Perhaps not punchier enough.

• In this insight, we discuss in detail MBK’s four major concerns on the management of Korea Zinc. 
• We believe that MBK has legitimate concerns on especially the three factors including poor investments, deteriorating profitability, and increase in equity capital/disposal of treasury shares. 
• If and when the 2 trillion won+ is raised, then it could lead to another tender offer and the four concerns highlighted in this insight become much more important.

• Lotus released a scope and study for the Little Cane project in Botswana
• The project hosts a low grade resource with 71% inferred
• The study includes three scenarios for production and focuses on reducing the need for drill and blast operations, potentially using drag lines for waste removal.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• US ADD measure expected to be in force from Sept 27
• Bombarded by Chinese exports Canada too join ADD league
• Tesla exports from China faces ADD in Canada, EU excuses

• For the week ending 13/Sep, US crude inventories dropped by 1.6m barrels, surpassing the expected 0.2m barrel decline. Gasoline stockpiles grew less than forecasted, while distillate inventories rose more.
• US natural gas inventories rise 58 Bcf for the week ending 13/Sep, more than analyst expectations of a 53 Bcf buildup. Inventories are 8.6% above the 5-year seasonal average.
• Chevron, Occidental Petroleum, and Exxon Mobil see target price cuts. DBS Bank initiated a Buy rating on Schlumberger and Halliburton.

• Condor has received a second natural gas allocation to feed the second modular LNG plant near the Kuryk Port on the Caspian Sea.
• The natural gas allocation will allow the company to produce the energy equivalent of 565,000 litres of diesel per day (~400 t/d of LNG).
• This is line with the company’s targets and is a key milestone in derisking the Kuryk plant.

• China’s State Administration for Market Regulation has formally accepted  Shandong Xinjufeng Technology  (301296 CH) (XJF)’s filing. That’s positive. SAMR previously okayed XJF’s initial 28.22% stake from Jardine Matheson (JM SP).
• No new update on co-founders Jeff Bi and Gang Hong’s non-binding Offer. 
• Separately, the EGM requisitioned by XJF to appoint two XJF-friendly directors progresses.

• Hankyung Business Daily reported that Korea Investment Securities (KIS) is in a serious discussion with the Choi family of Korea Zinc to step up as a white knight.
• KIS/Choi family are considering a plan to launch a counterbid against Jang family and MBK by investing around 2 trillion won+ along with other private equity funds.
• It is probable that tender offer price of Korea Zinc could be raised by 15-25% due to a likely counterbid and current price trading 7% higher than tender offer price.

• Prices showing uptrend after a marginal slide in recent times  
• Kerala climate conducive for production, leading to good yield  
• More regions in bid to expand rubber area buoyed by higher prices

• The key issue is if KIS can form a consortium. PEFs are saying the timeline is too tight and are concerned about the unclear exit strategy.
• To make this work, PEFs need Choi’s 15.65% Korea Zinc stake as collateral, but much of it is already tied up, limiting cash-raising potential.
• They’ll likely continue to leak news to boost the price and buy time. But this will also push MBK to sweeten their offer sooner.

• MBK’s funding plan for Korea Zinc involves using ₩1T from their 6th Buyout Fund and the rest via debt. This setup leaves room to potentially increase the tender price.
• The key question is if there’s enough upside at this price. MBK’s silence on abandoning Youngpoong suggests they’re unlikely to fully bail on Korea Zinc even if the tender fails.
• With MBK’s strategy leaked, institutions may hesitate, fearing less price drop risk, suggesting a proxy battle could heat up. We should consider spread trading and post-tender price moves.

• Sherwin Williams offers a 6.9% yield for the next four years or more through a diversified portfolio of bonds.
• The company is a leader in the paint and coatings industry, with a focus on professional painters and industrial applications.
• Sherwin Williams has a long history and has been a quiet compounder, compounding earnings at 14% per year over the last 20 years.

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• Source Energy Services is a producer, supplier, and distributor of high-quality Northern White Frac Sand primarily in the Western Canadian Sedimentary Basin
• The company offers an end-to-end solution through its Wisconsin sand mine assets, producing 4.8mmtpa of tier 1 Northern White Sand
• Source Energy Services issued 10.5% senior secured notes in December 2020, offering an attractive opportunity at current prices with a low-risk carry of 10.5%

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• TM announced a key production milestone, having mined 980tpd over a 30-day period, surpassing a threshold in the Sprott streaming agreement.
• This news de-risks the project as Trigon is no longer required to convert the principal advance into a loan (more detail below).
• As a result of the highly successful underground mining operations, the Company has decided to pause the open pit and only process high-grade underground ore.

• As of today, it’s clear Choi is struggling to secure white knights, pushing him to double down on political lobbying to stay in the game.
• Choi’s aiming for the National Pension Service’s 7.57% voting rights, but with its legal neutrality, the chances of it caving to political pressure are slim.
• MBK’s statement today shows confidence that Choi won’t get Fair Trade Commission approval, and that, like Hanwha and LG, Hyundai Motor won’t back him either.

• On Friday in the closing auction, JSE indices will be rebalanced. PPH will enter the Top 40, with AMS falling out.
• There are also a number of changes to the ALSI index – PHP & PMR will be added, with THA & TCP falling out.
• Hedgers and passives tracking uncapped indices will be sellers of Naspers and Prosus whereas those tracking the capped variants will be buyers.

• China’s industrial production grew 4.5% YoY in August, missing the 4.7% forecast and marking the slowest growth since March.
• Property investment fell 10.2% YoY YTD, with house prices declining 5.3% YoY, the steepest since 2015.
• Iron ore imports dropped 1.38% MoM as port inventories rose continued rising into September. Typhoon Bebinca disruptions may drive inventory drawdown in coming weeks.

• Malaysian glove industry to rake in RM12.4 billion in exports in 2024  
• Ivory Coast lags in imports to Malaysia after 9-month lead  
• Home Ministry lets 10,000 foreign workers in to meet labor shortage

• SGX Iron Ore futures closed 55 cents higher at $92.80/ton, after fluctuating between a $95.55/ton high and $89.60/ton low.
• Short-Term technicals reveal bearishness as the 9-day moving average fell below the 21-day, triggering a death cross signal.
• Iron ore prices failed to sustain a 50% Fibonacci retracement level, indicating weak market support amid poor fundamentals.

Pan American Silver (PAAS) has released its annual mineral reserves and resources statement. While the overall reserves and resources have fallen compared to 2023 due to the asset divestments, on an adjusted basis the company has fully replaced its proven and probable (P&P) reserves and reported a significant increase in measured and indicated (M&I) resources in the silver segment. The gold segment has seen a visible boost to its inferred resource due to exploration work at Jacobina, which has also seen a healthy increase in its P&P reserves despite maintaining flat M&I resources over the year. Overall, six out of 11 producing operations, including flagship Jacobina and La Colorada, have seen their mineral reserves either fully or almost fully replaced in tonnage terms during the year to June 2024.

• 1H24 production of 5,851 boe/d had been reported previously.
• Pharos has re-iterated its FY24 production guidance of 5.2-6.5 mboe/d.
• The company expects to spend US$26 mm (net) capex in 2024 (US$27 mm previously).

• Adaro Energy (ADRO IJ) has announced that it intends to spin off its thermal coal related assets under Adaro Andalan Indonesia, allowing it to focus purely on its sustainable businesses. 
• The move will potentially allow it to realise a higher valuation for its pure coal assets while paving the way for access to sustainable financing for its renewable businesses. 
• This will help the group accelerate the progress towards having more than 50% of its revenues from non-coal businesses by 2023. Adaro Energy (ADRO IJ) can trade at higher multiples.

• EDG announced assay results for its first six drill holes as part of its 10,000m 2024 drill program, it has completed 11 holes (3,500m) to date.
• Today’s results confirm high-grade at-depth (~175m vertical) and extends the Imperial Zone ~100m to the northwest along strike (still open).
• Assays for the next five drill holes are expected to be released in mid-October.

• The ANS-2A sidetrack well has encountered a 6.5 m net vertical oil column in high quality Eocene-aged sandstone reservoir.
• The reservoir quality encountered at ANS-2A is consistent with ANS-2 (porosity and permeability ~20% higher than at ANS-3).
• The oil-water contact was encountered very close to the top of the water wet reservoir encountered at ANS-2.

• MBK can cut their target volume to 12% and, with 2 trillion won, raise the tender price to ₩800,000, leaving them a 20% cushion.
• MBK’s tight schedule aims to hit the 6.98% target while minimizing price volatility and market risk by shortening the offer window.
• MBK plans to sweeten the deal by about 20%, similar to Hankook, aiming for a 6.98% target with a 20% price hike from the start.

• Back on the 15th August, lithium play Latin Resources (LRS AU) entered into a Scheme with significantly larger peer, Pilbara Minerals (PLS AU). Timing appears fortuitous. 
• PLS is offering 0.07 new PLS shares for each LRS share held.  LRS shareholders will own ~6.4% of the combined entity. LRS’ largest shareholder, José Luis Manzano (7.9%), is supportive. 
• The scrip terms back out an implied price of A$0.20/share or a 67% premium to last close. This is done. And trading accordingly. Expected implementation late November, early December.

• Sung Woo is getting ready to complete its IPO in KOSDAQ in October 2024. Founded in 1992, Sung Woo produces components for cylindrical rechargeable battery, energy storage system, and automotive. 
• The IPO price range is from 25,000 won to 29,000 won. According to the bankers’ valuation, the expected market cap is 376 billion won to 436 billion won. 
• The book building for the institutional investors will be conducted from 10 to 16 October. The lead underwriter of this IPO is Korea Investment & Securities. 

• US oil and gas rig count rose by eight to 590 for the week ending 13/Sep, the first increase in five weeks and the largest weekly gain in a year.
• US oil rig count increased by five to 488 after staying flat for three straight weeks. Gas rigs rose by three to 97, marking its first increase in four weeks.
• For the week ending 13/Sep, US energy producers added three rigs each in Louisiana, Oklahoma, and Wyoming. Conversely, they cut two rigs each in California and Pennsylvania.

• US natural gas prices inched by 1.3% for the week ending 13/Sep, as the uptrend moderated following the impact of Hurricane Francine. Production cuts lifted prices last week.   
• Henry Hub Put/Call volume ratio rose to 1.45 (13/Sep) from 1.19 the previous week as put volumes rose by 45.4% WoW, while call volumes grew by 19.2%.
• Put volume and OI surged for contracts expiring on 25/Sep, Oct, and Nov. Call OI rose for expiries on Dec, Jan, Feb, and Mar.

• Post our  initiations Southern Copper: In a League of Its Own and Teck Resources (TECK US): The New Purish Copper Play In Town, we initiate on Antofagasta PLC (ANTO LN) 
• The company provides an excellent channel check for Chile’s mining environment. It accounts for 24% of global mined production in the copper market. 
• We provide a comparison between all the mining players’ ROIC and which are the favorable names to play in the space. 

• WTI futures gained 1.45% for the week ending 13/Sep, as Hurricane Francine offset demand concerns. The smaller-than-expected build in US crude inventories aided in the rebound.
• WTI options Put/Call volume ratio increased to 1.30 (13/Sep) from 1.17 the week prior as call volume fell 36.6% WoW while put volume fell by 29.9%.
• WTI OI PCR dipped to 0.76 for the week ending 13/Sep from 0.78 on 06/Sep. Call OI rose 7.6% WoW and put OI picked up by 4.7%.

• VAALCO is an Africa-focused oil producer with a portfolio of short- and long-lead time development and exploration projects that could materially grow the reserve and production base over time.
• The company owns positions in four African countries, including Egypt, Gabon, Côte d’Ivoire, and Equatorial Guinea. It also owns a position in Canada.
• VAALCO has a long operating history in Africa and stations a dedicated country manager in each jurisdiction to foster close cooperative working relationships with the local authorities and partners. 

• During the period May 24th, 2024 – August 23rd , 2024, a mixed trend was reflected in the prices of steel coil futures amid fluctuations.
• During the period under consideration, there was an overall decrease in the price of steel coil futures.
• The MA-20 was recorded to perform higher than MA-10 in the beginning of the period, but after that there were many fluctuations with the MA-20 ending up again the MA-10 line.

• Riley’s conventional asset base on the Northwest Shelf portion of the Permian Basin positions the company to efficiently allocate capital to grow the underlying reserve and production base while generating free cash flow that can be used to maintain a conservative balance sheet and support the common stock dividend.
• Our modeling suggests that Riley could convert more than 50% of FY24/FY25 discretionary cash flow into free cash flow.
• Our modeling suggests that estimated FY24/FY25 free cash flow provides more than 4.0x coverage of the current dividend 

• Sayona Mining (SYA AU) will be deleted from the VanEck Rare Earth/Strategic Me (REMX US) at the close of trading on 20 September.
• Constituent changes, float changes and capping changes result in an estimated one-way turnover of 5.7% and in a round-trip trade of US$35m.
• The largest inflows will be in Eramet, Tronox and Lithium Americas Argentina while the largest outflows will be from Lynas Corp, Sayona Mining and MP Materials (MP US).

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.

• Adaro Energy
• Vedanta Resources
• Yankuang Energy Group

• There are 2 adds and 3 deletes for the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in September. Plus there are capping and float changes.
• Estimated one-way turnover is 11.4% resulting in a round-trip trade of US$1.14bn. There are 16 stocks with over 1x ADV to trade from passive trackers.
• The largest inflows are expected in B2Gold Corp, Evolution Mining and Pan American Silver while the largest outflows are from Kinross Gold and Cia de Minas Buenaventura SAA.

• OPEC cuts demand growth estimates for the second straight month, lowering its 2024 and 2025 forecasts by 3.8% and 2.2%, respectively, citing demand weakness in China.
• Total production of OPEC members obliged to implement supply cuts averaged 21.48m bpd in August, exceeding the target by 1.6%.
• EIA lowered its 2024 and 2025 oil price forecasts due to slower demand growth. However, it expects a quick recovery in prices driven by declining inventories.

• Enterprise Products Partners L.P. reported robust results for the second quarter of 2024, with $1.4 billion in net income, marking a 12% increase over the same quarter the previous year.
• This performance is grounded in the company’s extensive project initiatives and strategic operations in various segments, including natural gas and NGL pipelines and services.
• 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.

• Transocean’s recent quarterly earnings results present a dual narrative with strong operational performance reflecting positively on the company’s strategic initiatives and market positioning, while also highlighting areas of concern that potential investors should consider.
• In terms of positive developments, Transocean reported adjusted EBITDA of $284 million with contract drilling revenues of $861 million, translating to an impressive EBITDA margin of approximately 33%.
• This strong performance is a testament to the company’s operational efficiency, marked by a revenue efficiency of approximately 97% in the quarter.

• MBK has teamed up with Young Poong (000670 KS) to secure control of Korea Zinc (010130 KS) via Partial Tender Offers for Korea Zinc and Young Poong Precision (036560 KS).
• Preceding my comments on Young Poong, Korea Zinc, and Young Poong Precision are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• We have significantly raised the NAV of Young Poong to 965,193 won (up 105% than previously). Our current NAV estimate of the company is 150% higher than current price.
• Some traders have been positioning for Young Poong to be deleted from the KOSPI200 in the next round of rebalancing. Young Poong is not likely to be deleted from KOSPI200.
• We also provide three potential scenarios of the Choi family’s strategy to fight back to gain control of Korea Zinc.

• Since Choi and his affiliates can’t buy shares directly, his only play is to recruit more white knights to boost his stake.
• He needs at least 6% from the 23% free float, costing over ₩800 billion. This hefty price tag is why the stock hasn’t moved much from the tender offer price.
• The market isn’t ruling out Hyundai getting aggressive to secure Korea Zinc’s nickel, making this a hot trading point during the tender offer.

• Osino Resources offering short-term merger arbitrage opportunity through acquisition agreement with Yintai Gold
• All-cash transaction valued at C$1.90 per share, presenting 7% return opportunity for investors
• Yintai Gold’s 32% premium offer compared to previous bid from Dundee Precious Metals provides downside support; seen as relatively low-risk opportunity suitable for smaller funds

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.