Energy & Materials Sector

• Asia Cement China (743 HK) disclosed a Cayman scheme privatisation offer from Asia Cement (1102 TT) at HK$3.22. Including the dividend, the total offer is HK$3.26, 1.7% below the last close. 
• The offer, which is final, is unattractive as it is materially below net cash and historical trading ranges. The disparity cannot be justified by the potential cash burn this year.
• While no shareholder holds the 10% blocking stake, the high AGM minority participation rates and emerging retail opposition suggest a high chance of a deal break. 

• After Chinese cement play Asia Cement China (743 HK) (ACC) was suspended on the 28th May, a punchy Offer from its parent Asia Cement (1102 TT) was expected. 
• Not to be. Asia Cement is offering $3.22/share, best & final. A 3.01% discount to last close, ~ 45% premium to undisturbed, and a whopping 37% discount to net cash.
• Asia Cement plus concert parties hold 73.38%, so a blocking stake at the Court Meeting is 2.662%. One (possible) aspect in Asia Cement’s favour is that ACC is not shortable.  

• OPEC+ decided to extend production cuts to the end of 2025. It also plans to ease voluntary output cuts starting this October.
• Easing hints sent oil prices tanking, shedding 5% over two days. Weak demand and ample supply thanks to overproduction by OPEC+ members lend little price support.
• Summer driving season will ramp up gasoline demand. Weather might dampen demand, but panic buying will more than offset the demand pullback.

• Archer Ltd reorganized to address over-leveraged balance sheet hindering reinvestment and growth
• Company’s $506 million net debt at 5.3x leverage led to challenges in credit facilities due to ESG pressures and price volatility
• Secured 1st lien credit facility, 2nd lien bond, and equity financing at discounted rate to strengthen capital structure for future growth

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• Mmg Ltd (1208 HK) today announced a 2:5 Rights Offering to raise US$1.15bn at HK$2.62/share in order to pay down debt from their recent Botswanan copper mine acquisition. 
• It was a sizeable acquisition, and the near-term EV/EBITDA of the acquisition is 10x or above. The longer-term EV/EBITDA is in the 3s based on expansion later this decade.
• The Rights Offering is underwritten, supported by its 67.5% owner. SOUTHBOUND holds 10+%. There are short dynamics, arb dynamics, “don’t wanna spend more” dynamics. There’s a path here.

• Mmg Ltd (1208 HK) will raise HK$9.1bn (US$1.2bn) through 2 rights shares for every 5 existing shares rights offering. The rights price is HK$2.62, a 24.7% discount to the TERP.
• The rights proceeds will be used to repay existing debt, which will allow it to use other funds to better support the ongoing development of the operating mines.
• MMG shares should continue to decline heading into the ex-rights date. The shares go ex-rights on 11 June, and the rights start trading from 24 June to 2 July (inclusive).

• Back in February last year, the Aussie Treasurer prohibited Yuxiao Fund from buying an additional 9.92% in Northern Minerals (NTU AU) which would have increased its stake to 19.9%.
• On the 20th November 2023, Yuxiao sought the removal of Nicholas Curtis as director of the rare-metal play at an EGM; however Curtis resigned his post and the EGM cancelled.
• The Aussie Treasurer has now made orders requiring Yuxiao and four (deemed) associated investors to sell their holdings (~10.4% all-in) within 60 days. 

• Short term overhang from expanded share count and selling from unwilling participants
• The copper supply and demand story is intact and the fundamentals of the company remain strong
• Parent’s uptake of the rights is positive but the stock will take time to build a base for the next leg up 

• Conocophillips is set to acquire Marathon Oil in an all-stock deal (0.2550 COP US per 1 MRO US) valued at $22.5 billion ($30.33/share), including $5,379 million in net debt.
• Most of the frenzy in the US oil industry has focused on the consolidation within the Permian Basin, a maturing region that offers opportunities to reduce costs and increase profitability.
• The acquisition of Marathon will add highly complementary acreage to ConocoPhillips’ existing U.S. onshore portfolio. Spread as of 4 June is 2.6%/4.7% (gross/annualised, assuming settlement by late Q4).

• May was silver’s time to shine, hitting 12-year highs up 13.7% on the month, significantly outperforming gold and other metals.
• The silver equities also followed suit, up 13.4%.
• Gold and copper posted smaller gains, despite both metals setting all-time highs mid-month, closing up 0.2% and 1.7%, respectively.

• Yankuang Energy Group (1171 HK) is looking to raise up to US$608m through a primary follow-on, via selling 270m H-shares.
• The deal is a somewhat large one to digest, at 10.6 days of three month ADV and 2.7% of current mcap.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• The June 2024 index review results for the SSE 50 and SSE 180 indices were announced after market close on Friday 31st May 2024.
• There will be 5 changes for the SSE 50 index and 18 changes for the SSE 180 index.
• These changes could collectively cause one-way index flows of ~US$1.8bn during the June 2024 index rebal event. In this insight, we take a look at our final flow expectations.

• Brent crude has weakened by $10 since early April, with the prompt time spread indicating plentiful supply relative to consumption
• Demand for crude oil for combustive fuels like gasoline and diesel is expected to peak towards the end of the decade, while demand for natural gas liquids used in petrochemical production is set to rise
• Preliminary demand data for April showed signs of improvement, with observable oil inventories increasing, particularly in China, due to lower oil prices prompting stockpiling

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• The Holy Grail of Commodity Trading? If there is a holy grail of commodity trading, I would say it’s becoming a master in reading the movements in the futures forward curve.
• Knowing how futures contracts change and how the curve shifts from contango to backwardation, and vice versa, gives commodity traders a lot of useful info about the physical supply and demand.
• While many market participants argue about the meaning and definition of backwardation and contango, the direction in which the spreads are actually moving is far more important to us.

Tata Steel’s Q4 and FY 2023-24 numbers were weak in our view, with the restructuring of the UK operations weighing on group performance and offsetting the robust Indian business. The financial risk profile deteriorated significantly, due to lower earnings and soft cash flows. Liquidity was inadequate, driven by the poor cash flows and large dividends.

We expect the steel industry’s operating environment in FY 2024-25 to be constructive and support Tata Steel’s earnings. However, the company’s solid earnings for the Indian operations should be offset by the restructuring of the UK business, for which another GBP 1.6 bn of additional costs is projected. It is unclear if there is light at the end of the tunnel.

• 1Q24 production (excluding NGL) in the Williston was 1,151 boe/d.
• This is 140 boe/d above our expectations and ~100 boe/d above 4Q23 production.
• Production in March (excluding NGL) had increased to 1,212 boe/d.

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.

• Indika Energy

• The northern flank at Hibiscus, appraised by the DHIBM-7P pilot vertical well, is estimated to hold 8-12 mmbbl gross reserves (Panoro WI: 17.5%).
• This is above our early estimate of 8 mmbbl.
• The well was drilled from the pilot hole of the recently drilled Hibiscus South well that had already encountered 5-6 mmbbl recoverable resources in a north-east extension of the field.

• SLCA has seen a decrease in shares and reduction in debt, making its enterprise value cheaper
• Core thesis remains unchanged, with focus on potential split of company’s two businesses for separate valuations
• Recent acquisition in frack sand business by Atlas Energy provides comparable valuation exercise for SLCA, suggesting potential value of company’s assets and opportunity for increased valuation in the future

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.

• Blackstone (BX US) is widely reported to have agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a valuation of JPY260 billion. 
• If the valuation refers to market cap and Teijin shares its tax benefits, Teijin’s sale proceeds are around JPY128 billion, which is 42% of its market cap.
• However, since 9 May, Teijin shares have been flat vs. Infocom shares are up 63%. Teijin’s medium-term plan suggests that the Infocom proceeds could result in substantial share buybacks.

• There are 12 changes for the CSI 300 Index (SHSZ300 INDEX) and 50 changes for the CSI Smallcap 500 Index (SH000905 INDEX) in June. Most changes were expected.
• There are a lot of stocks with over 1 day of ADV to trade. The round-trip trade in June is estimated to be US$5bn.
• The adds have outperformed the deletes for both indices but the return profile of a long adds/ short deletes trade for the CSI500 Index is a lot smoother.

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• One new deal was discussed on Smartkarma this week:Huafa Property Services Group (982 HK)‘s Scheme. Asia Cement China (743 HK) also suspended pursuant to the Takeovers Code. 
• Key updates took place on: QV Equities (QVE AU), Boral (BLD AU), Greatview Aseptic Packaging (468 HK), Sciclone Pharmaceuticals (6600 HK), and Chilled & Frozen Logistics Holdings (9099 JP).

• On the 9th May, Shandong Xinjufeng (301296 CH) (XJF) made a pre-conditional voluntary general Offer at $2.65/share (best & final), contingent on a 50% acceptance. Final/special dividends to be added.
• GAPack(468 HK) has made it clear that XJF is a competitor of GAPack. And Mengniu (2319 HK) may review its relationship if pre-cons are satisfied/waived; or the Offer gets up.
• XJF has announced the necessary applications have been sent to NDRC, MoC, and SAMR; and it prepping for a shareholder meeting to approve the Offer. 

• Eagle Materials, a producer of building materials such as cement and concrete, concluded the fiscal year 2024 with robust financial performance, reflecting in its record revenue of $2.3 billion and record diluted EPS of $13.61.
• The financial results were primarily attributed to the company’s dedicated workforce and superior quality products, which continue to attract customer support and investor confidence.
• A highlight of Eagle Materials’ operational performance was its effective execution of safety measures.

• 24mos ago, Kansai Paint (4613 JP) announced a new MTMP, a large buyback, and plans to unwind cross-holdings. Big. 15mos ago a large secondary offering kicked off the festivities.
• Key was Toyota sold. Then KP could sell its Toyota shares – two-thirds of its cross-holdings. The offering was one to buy. A buyback followed. KP vs Nippon Paint doubled.
• KP offered a CB recently with the delta hedge done by TN-3. Now there is a HUGE new buyback. Really big. This gets rid of more cross-holders. And there’s more.

• VAALCO has brought online four new long (2.75 mile) lateral wells in Canada.
• Three wells delivered IP rates of 500 bbl/d while the fourth well flowed 350 bbl/d for a total production capacity addition of 1.85 mbbl/d.
• This is a good result and compares with individual IP30 oil rates of 374-444 bbl/d achieved at the two wells drilled in 2023.

• The 1Q24 production of 2,730 boe/d was close to our expectations.
• Arrow’s cash position of US$11.6 mm was also in line.
• The first water disposal well at RCE is being brought into production and the conversion of the CN-4 well is currently waiting regulatory approval.

• Chinese cement play Asia Cement China (743 HK) (ACC) is currently suspended pursuant to the Takeovers Code.
• Asia Cement (1102 TT) has been ACC’s majority shareholder since its 2008 IPO. Asia Cement currently holds 73.07%. 
• Shares gained ~50% this week. On serious volume. With net cash of US$1.03bn vs. a market cap of US$66mn, a privatisation should command a punchy premium to the last close.

• Asia Cement China (743 HK) entered a trading halt based on the Hong Kong Code on Takeovers and Mergers. Bloomberg reports that Asia Cement (1102 TT) is considering a buyout. 
• Privatisation interest is unsurprising, as ACC’s EV has been negative since 6 July 2022 due to headwinds from the weak Chinese property sector and uncertainty about cash use.
• An offer price of HK$5.18 would imply a zero EV. However, due to the difficult trading conditions, we think an offer would be around HK$4.00 per share.

• Boss Energy, an Australian uranium producer, saw a significant drop in stock price following the sale of shares by three directors.
• The directors sold a substantial amount of their stock, representing 83%, 63%, and 63% of their ordinary shareholdings respectively.
• The high volume of trading on the stock on the day of the sale has raised concerns about the timing and implications of the director’s actions during a critical phase of the company’s life cycle.

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• 1Q24 production of 3,009 boe/d was in line with our forecasts.
• The net debt at the end of March was ~US$1 mm below our expectations.
• We continue to assume that the 2nd DUC will not be completed before 4Q24 with the further DUCs being completed in 1Q25 and 2Q25.

• With the review period complete, we take a look at the potential index changes at the June rebalance as well as potential index inclusions due to M&A.
• Timing is key for the ad hoc inclusions to the S&P/ASX 200 (AS51 INDEX) with an ad hoc inclusion being announced prior to the regular announcement.
• Passive trackers will need to buy 1.3-27x ADV on the expected adds and have 0.8-4.7x ADV to sell on the expected deletes. Shorts have built up on the potential deletes.

• As one of the fastest-growing economies globally, India is projected to become the third-largest economy, trailing only China and the US, by 2027.
• Amid macroeconomic challenges worldwide, investors are eager to tap into India’s robust economic growth.
• However, economic growth does not always correlate with equity market growth, as seen in Spain and Italy during the 1980s and 1990s, and more recently in China.

• The OBA-1 well onshore Morocco has encountered an approximate 70 m gross interval containing elevated resistivities coincident with elevated mud gas readings, indicating potential gas pays, with no water-bearing reservoirs identified.
• While the approximate 200 m gross thickness for the reservoirs is in line with pre-drill expectations, the absence of water in the 70 m gross interval is particularly encouraging and could suggest larger than expected resources (12 bcf pre drill).
• The well is now expected to be tested in 3Q24.

• ADF announced a series of new contracts totalling $90M spanning the pharmaceutical, industrial, and public infrastructure sectors.
• This includes additional work awarded for the pharmaceutical project in the Midwest U.S. which ADF was recently awarded phase 2 for.
• ADF will be reporting Q1/25 on June 11th, we are expecting $90.1M revenue (12% YoY), 23.5% gross margin, and $17.2M EBITDA (19% margin).

• Two wells recently drilled at Nong Yao are likely to add some reserves.
• The 37H development well has been put on production from the primary reservoir at an initial flow rate of ~500 bbl/d net to Valeura’s WI.
• The well has also encountered 68 feet of net oil pay across eight separate appraisal target intervals.

• Over the weekend, the FT reported that Anglo was urged by top shareholders to extend talks with BHP over its proposed merger. 
• BHP’s third unsolicited non-binding offer was rejected last Wednesday. The merger exchange ratio was raised by 9% to 0.886, an increase of 24.8% on the initial offer ratio.
• Anglo left the door open for talks, extending the PUSU deadline for BHP to make a firm offer by 1 week to this Wednesday (29 May).

• Barito Renewables Energy (BREN IJ) raised around US$200m in its Indonesian IPO, after pricing at the top end at IDR780/share. Its eight-month lockup will expire on 29th May 2024.
• Barito Renewables (BR) is Indonesia’s largest geothermal power producer, and the third-largest globally by installed capacity, as per the firm.
• In this note, we will talk about the lock-up dynamics and updates since our last note.

• Impending block deals which generally create supply over-hang on the stock leads to a negative impact on the stock
• These block deals generally include selling promoters and big funds at a price discount to its current market price
• Historically, such events suggest once the block deal is done; stock reacts positively creating a Special Situation Opportunity

• S&P 5700 year end target remains intact after MONTHLY breakout. 
• Copper and silver rally to resume with dollar potentially falling.
• Semis continue to lead tech and look for software to join.

• Genel Energy is a high-risk arbitration opportunity with potential for significant reward due to its legal dispute with the Kurdistan government
• Despite previous market capitalization reduction in the 2014 oil crisis, Genel Energy is now an undervalued asset with strong cash position and minimal debt
• With current market cap at £210 million and significant cash reserves, the company has notable potential for growth, but the unpredictable nature of the situation makes it difficult to model or quantify with certainty

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.

• Expectations of an “above-normal” monsoon in 2024 currently help to keep prices for commodities that are in large parts grown in India under control.

• That includes rice as well as sugar prices.

• According to the IRI’s latest ENSO forecast, La Niña becomes the most probable category in Aug-Oct, 2024 through Jan-Mar, 2025.

• Adriatic is raising an additional $50 million in capital through a discounted offering
• Orion is selling down half of their equity position in the raise, with plans to trim further after 90 days
• Queens Road Capital converted their $20 million convertible debt into equity ahead of schedule in March

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• Uranium spot prices are up 84% since our last report in late 2022, yet we still expect further momentum in the sector.
• The sentiment on nuclear power from governments around the world has begun to shift, with many nations ramping plans for reactors.
• While new mines begin production and future mines achieve financing, we continue to believe the current spot price is too low in the short term.