Category: Commodities

A commodity market is a physical or virtual marketplace for buying, selling, and trading raw or primary products. There are currently about 50 major commodity markets worldwide that facilitate trade in approximately 100 primary commodities. commodities can be invested in numerous ways. An investor can purchase stock in corporations whose business relies on commodities prices or purchase mutual funds, index funds, or exchange-traded funds (ETFs) that have a focus on commodities related companies.

Categories
Commodities Trading Ideas & Charts

Targa Improves Modeling of Grand Prix and Product Margins

Business Strategy and Outlook

Targa Resources is primarily a gatherer and processor of natural gas with an attractive position in the Permian Basin and other key U.S. shale plays. 

Targa’s longer-term growth picture over the next few years will be its Permian G&P position, liquefied petroleum gas exports, and the ramp-up of the Grand Prix natural gas liquids pipeline. There are few long-term concerns about the G&P business, because of the high level of competitive intensity within the Permian will keep returns extremely low. 

 The future of LPG exports and Grand Prix are quite attractive. LPG exports are largely contracted out to 2022 and sent mainly to Asian and Latin American markets. India remains a potentially attractive option under a government scheme designed to encourage LPG usage. Targa has wisely expanded its export capacity recently, and volumes are at record levels.

The Grand Prix NGL pipeline will be a highly attractive asset that takes advantage of Targa’s position in the Permian Basin to move over 350,000 barrels per day of NGLs by our estimates in 2021 (expandable to 550,000 b/d) to Mont Belvieu, and links Targa assets at both ends of the pipe, giving it more control over the molecule and ability to earn multiple fees. The Grand Prix pipeline will reduce Targa’s costs for NGLs, as it will no longer pay third-party tariffs to transport its NGLs to market.

Financial Strength 

In 2020, Targa’s financial health was weak but  has changed in a strong energy market in 2021 and Targa’s own efforts to fix its balance sheet. Targa has repaid $1 billion in debt in 2021, funded with strong earnings and lots of free cash by cutting the dividend and capital spending, and leverage is expected to reach 3.25 times by year-end, a commendable accomplishment for a firm that has historically run well over 4 times leverage. Still, Targa’s exposure to weaker customers is greater than peers’, as it disclosed that less than half of its revenue by our estimates is from investment-grade or letter of credit-backed customers. Peers tend to be around 75%-85% investment-grade or letter of credit-backed.Targa has boosted the dividend to $1.40 per share annually in November 2021, up from the $0.40 annually it paid out since March 2020. Previously, the payout was $3.64 annually. Share buybacks are now on the menu, as even after the expected Stonepeak repurchase in 2022 for $925 million, Targa will still have about $250 million-$300 million in excess free cash flow.

Bull Says

  • Targa is leveraged to the high-growth Permian, and its Grand Prix pipeline is expected to increase volumes 25% in 2021. 
  • Targa has reduced debt by $1 billion in 2021, which is a good accomplishment for what has historically been a highly leveraged firm. 
  • Targa is a significant fractionation player at the attractive Mont Belvieu hub.

Company Profile

Targa Resources is a midstream firm that primarily operates gathering and processing assets with substantial positions in the Permian, Stack, Scoop, and Bakken plays. It has 813,000 barrels a day of gross fractionation capacity at Mont Belvieu and operates a liquefied petroleum gas export terminal. The Grand Prix natural gas liquids pipeline recently entered full service.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Clean Energy and Safety Investments Support NiSource’s Growth Plans

Business Strategy and Outlook

After NiSource’s separation from Columbia Pipeline Group in 2015, it now derives all of its operating revenue from its regulated electric and natural gas distribution utilities. About 60% of operating income comes from its six natural gas distribution utilities. The remaining 40% comes from its electric utility business in Indiana. NiSource to invest more than $10 billion over the next four years, including what could be nearly $3 billion of renewable energy projects in Indiana, where NiSource enjoys favorable regulation.

In October 2020, NiSource sold its Columbia Gas of Massachusetts utility and received $1.1 billion of proceeds that it used to strengthen the balance sheet and prepare for its planned infrastructure investments. The sale came nearly two years after a natural gas explosion on NiSource’s Massachusetts system killed one person north of Boston. Insurance covered roughly half of the almost $2 billion of claims, penalties, and other expenses, but the event was a public relations nightmare.

Financial Strength

NiSource has issued a substantial amount of equity in the past few years in part to fund its large infrastructure growth projects and in part to cover liabilities arising from the Massachusetts gas explosion. This dilution and the sale of Columbia Gas of Massachusetts has kept earnings mostly flat since 2018. NiSource’s debt/capital topped 67% at year-end 2017, but huge equity infusions have brought that down to more sustainable levels in the mid-50% range. NiSource issued over $1 billion of common stock and $880 million of preferred stock in 2018 and 2019. The Massachusetts utility sale in 2020 raised $1.1 billion, and NiSource issued $862.5 million of convertible preferred equity units in early 2021.

NiSource has grown its dividend nearly 40% since the 2015 Columbia Pipeline Group spin-off, but the growth has not been consistent. The company increased its dividend in mid-2016 by 6.5% and again by 6.1% in the first quarter of 2017, then by 11.4% in 2018. But the 2019 dividend increase was only 2.6% following the Boston gas explosion. It is Expected that dividend growth might pick up in 2024 once NiSource is past the peak of its five-year capital spending plan and its equity needs shrink.

Bulls Say’s

  • Dividend is expected to grow near 5% annually during the next few years before accelerating to keep pace with earnings in 2024 and beyond.
  • NiSource should benefit from Indiana policymakers’ desire to cut the state’s carbon emissions by replacing coal generation with renewable energy, energy storage, and possibly hydrogen.
  • New legislation has improved the regulatory framework in Indiana for NiSource’s electric and natural gas distribution utilities.

Company Profile

NiSource is one of the nation’s largest natural gas distribution companies with approximately 3.5 million customers in Indiana, Kentucky, Maryland, Ohio, Pennsylvania, and Virginia. NiSource’s electric utility transmits and distributes electricity in northern Indiana to about 500,000 customers. The regulated electric utility also owns more than 3,000 megawatts of generation capacity, most of which is now coal-fired but is being replaced by natural gas and renewables.

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities

Attractive yield and growth through acquisition makes APA Group an appealing stock

Investment Thesis:

  • High quality assets, which are difficult to replicate 
  • Given the quality of APA’s assets; the Company will always retain its M&A appeal
  • Last takeover bid (by CKI) was at $11.00 per share
  • Attractive and growing distribution yield
  • Highly credit worthy customers
  • Currently assessing international opportunities – USA focus 
  • Growth through acquisitions 
  • Diversified customer base by sector
  • Largest owner of gas transmission pipelines in Australia 
  • Opportunity to grow its renewable business 
  • Management announced their ambition to achieve net zero operations emissions by 2050  

Key Risks:

  • Negative market/investor sentiment towards “bond-proxies” 
  • Future regulatory changes by pipeline regulators
  • Large portion of businesses are exposed to the energy sector  
  • Infrastructure issues such as explosions or ruptures 
  • Adverse decision from COAG reviews transmission costs
  • Shorter contract terms on existing capacity

Key highlights:

  • APA’s FY21 results underwhelming in a difficult trading environment with underlying EBITDA down -1.3% to $1.6bn
  • APA has ample liquidity with ~$1.9bn in cash and undrawn facilities, with management also confirming that it remains in discussions with Keppel Infrastructure to potentially acquire Basslink Pty Ltd, which owns and operates a 370km high voltage, direct current (HVDC) electricity interconnector that links the electricity grids of Victoria and Tasmania
  • APA’s U.S. acquisition remains elusive whilst the analysts commend management’s disciplined approach to valuation
  • With difficult to replicate infrastructure assets, quality resilient revenues and strong balance sheet, APA itself could be a target
  • With recent M&A in the infrastructure sector, it becomes obvious that APA is unlikely to find a bargain and will continue to be out bid on deals
  • Approximately 6% dividend yields are distributed by APA Group
  • Total capex was up +3.3% over pcp to $432.5m
  • Free Cash Flow of $901.9m, was down -5.7% over pcp, primarily due to a one-off distribution received and interest earned by APA from its investments in SEA Gas in FY20
  • Management invested over $280m in growth projects in FY21 which are expected to support revenue expansion in future years

Company Description: 

APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Coal Prices Still a Tailwind for Whitehaven and Shares Remain Undervalued

Production in the September 2021 quarter was higher than in June, with managed saleable coal production up 22%. Narrabri was the sole driver, adding more than one million tonnes more of saleable coal in September from the woeful June quarter’s 0.3 million tonnes.

Coal prices soared in the last quarter, fuelled by strong demand with coal being sought globally for industrial and energy use by governments in COVID-19 economic stimulus projects. On the supply side, production from Australia has yet to recover from the bout of low prices in 2020. According to the Australian Government’s Resources and Energy Quarterly, thermal coal exports from Australia in fiscal 2021 were down about 7% from fiscal 2019 levels and are not expected to fully recover until fiscal 2023.

Financial Strength:

Whitehaven remains substantially undervalued with the market likely underestimating the near-term cash flow generation from this business given the buoyant coal prices.

Whitehaven went into fiscal 2022 with more than AUD 800 million of debt. However, with the buoyant coal prices, about AUD 100 million of debt a month is being repaid, and the company is expected to have net cash in the third quarter. fiscal 2022. Whitehaven favourably received Federal approval for the Vickery Extension Project in September, with production expected from around 2025.

Company Profile:

Whitehaven Coal is a large Australian independent thermal and semisoft metallurgical coal miner with several mines in the Gunnedah Basin, New South Wales. It also owns the large undeveloped Vickery and Winchester South deposits in New South Wales and Queensland respectively. Coal is railed to the port of Newcastle for export to Asian customers. Equity salable coal production expanded from 10 million tonnes in fiscal 2014 to about 15 million tonnes in fiscal 2021, largely due to Maules Creek. The Maules Creek and Narrabri mines should be the key driver of an expansion in equity coal production to approach 19 million tonnes from fiscal 2023. Development of the Vickery deposit could see approximately 8 million tonnes of additional equity production from around 2025.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Santos Ltd. rides high on strong LNG pricing

with interests in all Australian hydrocarbon provinces, Indonesia, and Papua New Guinea. Santos is now one of Australia’s largest coal seam gas producers and continues to prove additional reserves. It is the country’s largest domestic gas supplier. Santos boasts some of Australia’s largest and highest-quality coal seam gas reserves. East-coast LNG attracts export pricing and indirectly drives domestic prices in the direction of export parity.

Coal seam gas purchases increased reserves, and partial sell-downs generated cash profits, putting Santos on solid ground to improve performance. Group proven and probable, or 2P, reserves doubled to 1,400 mmboe, primarily East Australian coal seam gas. Coal seam gas has grown to represent more than 40% of group 2P reserves, despite partial equity sell-downs. 

Financial Strength:

The fair value of Santos Ltd. is 10.20 which is mainly driven by time value of money and near-term energy price strength.

At end-June 2021 Santos had net debt of USD 2.8 billion, gearing (ND/(ND+E)) at 28% and annualised first-half net debt/EBITDA conservative at just 1.2. Santos’ debt covenants have adequate headroom and are not under threat at current oil prices. The weighted average term to maturity is around 5.5 years. Capital efficient development and fast up-front cash flows from Dorado’s oil should combine to ensure Santos’ leverage ratios continue to decline from current levels despite outgoings.

Bulls Say:

  • Santos is a beneficiary of continued global economic growth and increased demand for energy. Aside from coal, gas has been the fastest-growing primary energy segment globally. The traded gas segment is expanding faster still. 
  • Santos is in a strong position, with 0.9 billion barrels of oil equivalent proven and probable reserves, predominantly gas, conveniently located on the doorstep of key Asian markets. 
  • Gas has about half the carbon intensity of coal, and stands to gain market share in the generation segment and elsewhere as carbon taxes are rolled out.

Company Profile:

Santos was founded in 1954. The company’s name is an acronym for South Australia Northern Territory Oil Search. The first Cooper Basin gas discovery came in 1963, with initial supplies in 1969. Santos became a major enterprise, though over-reliance on the Cooper Basin, along with the Moomba field’s inexorable decline, saw it struggle to maintain relevance in the first decade of the 21st century. However, the stage has been set for a renaissance via conversion of coal seam gas into LNG in Queensland and conventional gas to LNG in PNG.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Woodside Banks Higher Third-Quarter LNG Pricing With More to Come

Adding to Woodside’s competitive advantages are the long-term 20-year off-take agreements with the who’s who of Asia’s blue chip energy utilities, such as Tokyo Electric, Kansai Electric, Chubu Electric, and Osaka Gas. These help ensure sufficient project financing during development and should bring stability to Woodside’s cash flows once projects are complete.

Woodside also enjoys first-mover advantages. The NWS/JV has invested more than AUD 27 billion since the 1980s, building infrastructure at a fraction of the cost of today’s developments. With substantial growth aspirations, Woodside still has considerable expenditure ahead of it, but the existing infrastructure footprint is regardless a huge head start, from both an expenditure and a regulatory-approval perspective.

Woodside’s development pipeline is deep, enabling it to leverage the tried and trusted project-delivery platform as a template for other world-class gas accumulations off the north-west coast of Australia. Woodside is well suited to the development challenge. With extensive experience, it remains a stand-out energy investment at the right price. 

Woodside Banks Higher Third-Quarter LNG Pricing With More to Come. 

Australia’s premier LNG company reported a 2% decline in third-quarter 2021 production to 22 million barrels of oil equivalent, or mmboe.LNG production was impacted by flagged maintenance at the North West Shelf’s Trains 2 and 4, and turnaround activities at Pluto LNG.Despite this, and reduced sales volumes due to inventory build, revenue increased 19% to USD 1.53 billion on higher averaged realised pricing. The average realised third-quarter LNG price increased by 40% to around USD 10.00 per mmBtu, considerably higher than the contract price. 

In the fourth quarter, Woodside can expect to see even greater benefit from stronger pricing given the one-quarter oil price lag in its LNG contracts, and the even greater spike in spot LNG prices post the third quarter. Woodside sold six LNG spot cargoes in the third quarter, in the vicinity of 10%-15% and is expecting approximately 17% of LNG to be sold at spot in the fourth quarter. In the third quarter, the LNG spot price doubled to more than USD 20 per mmBtu. But the average for October so far is closer to USD 35 per mmBtu.

Financial Strength 

Balance sheet strength remains a key appeal of Woodside. The company’s net debt/EBITDA of just 0.8 affords it the luxury of seriously pursuing growth countercyclically. Woodside’s net debt was USD 2.5 billion at June 2021 for modest 16% leverage. And despite expansionary capital expenditure programs, strong cash flows and a healthy balance sheet should regardless support ongoing dividend payments. Including merger with BHP Petroleum, we project net debt to remain modest at less than USD 3.0 billion.This includes a sustained 80% payout ratio.Expansionary expenditure on the Scarborough/Pluto T2 project, and potentially later on the Browse project, could see first expanded production in 2026. We model Woodside’s share of the combined capital cost after BHP Petroleum merger at circa USD 14.0 billion, driving a 13% increase in equity production to circa 250 mmboe, by 2027, and these are long-life additions.

Bulls Say 

  • Woodside is a beneficiary of continued increase in demand for energy. Behind coal, gas has been the fastest-growing primary energy segment globally. Woodside is favourably located on Asia’s doorstep. 
  • Woodside’s cash flow base is comparatively diversified, with LNG making it less susceptible to the vagaries of pure oil producers. Gas is a primary component of Asian base-load power generation. 
  • Gas has around half the carbon intensity of coal, and it stands to gain market share in the generation segment and elsewhere if carbon taxes are instituted, as some predict.

Company Profile

Incorporated in 1954 and named after the small Victorian town of Woodside, Woodside’s early exploration focus moved from Victoria’s Gippsland Basin to Western Australia’s Carnarvon Basin. First LNG production from the North West Shelf came in 1984. BHP Billiton and Shell each had 40% shareholdings before BHP sold out in 1994 and Shell sold down to 34%. In 2010, Shell further decreased its shareholding to 24%. Woodside has the potential to become the most LNG-leveraged company globally.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Alumina Price Finally Catches Up to Soaring Aluminium Price

Alcoa owns 60% and is the manager of the joint venture. Alumina is effectively a forwarding office for AWAC profits. Its profits stem from its equity share in AWAC, less local head office and interest expenses. While AWAC enjoys a low operating cost position relative to its competitors, the cost curve is relatively flat, and competitive pressures exist via supply from China. 

Alumina was the result of a demerger of WMC’s aluminium assets in 2003. AWAC has substantial global bauxite reserves and alumina refining operations, many of which are in the lowest quartile of the cost curve. AWAC primarily operates across the first two stages in the aluminium production chain: bauxite mining and alumina refining. AWAC’s refineries are, on average, just inside the lowest quartile of the cost curve. Alumina’s cost-efficient refining operations stem from proximity to bauxite mines and access to cheap power. 

Alumina Price Finally Catches Up to Soaring Aluminium Price; No Change to AUD 1.80 FVE

Our fair value estimate for no-moat Alumina is unchanged at AUD 1.80 per share. 

AWAC mined 11.1 million tonnes of bauxite and refined 3.1 million tonnes of alumina, both slightly lower than the June 2021 quarter. However, the gross margin on the alumina side rose 8% to USD 55 per tonne as realised pricing strengthened 4% to USD 292 per tonne. But this strengthening is only a prelude to what can be expected in the fourth quarter, with the average alumina price for the first two weeks of October at USD 410 per tonne. This is broadly as we’d expected given alumina has been wildly out of step with its usual synchronisation to the aluminium price. The latter is soaring at around AUD 1.40 per pound, nearly double the fiscal 2020 average. 

Our mid cycle alumina price forecast is unchanged at USD 315 per tonne and considered to be a healthy price. The global alumina cost curve is a flat one. We think rising energy costs, increasingly capturing the cost of carbon, and favourable demand trends via light-weighting vehicles and via battery market growth, support a healthy mid cycle alumina price. 

Financial Strength 

At end 2020, AWAC had USD 361 million in net cash, marginally improved on 2019’s USD 340 million. At the end June 2021, Alumina had just a position of USD 5.7 million in net debt, also marginally improved. Historically, AWAC reinvested heavily in its operations at the expense of dividend growth. We expect the company to remain largely in maintenance mode, with no major projects planned over the foreseeable future. Therefore, AWAC should pay out most if not all of its operating cash flows in the form of a dividend to Alumina Ltd. and Alcoa. This will help to maintain Alumina Ltd.’s strong financial health. We expect AWAC to remain unleveraged and Alumina to remain modestly leveraged at worst.

Bulls Say 

  • Alumina is a beneficiary of continued global economic growth and increased demand for aluminium via electrification of transport. 
  • AWAC is a low-cost alumina producer. It has improved its position on the cost curve relative to peers through expansion of low-cost refineries and closure of high cost operations. 
  • The amended AWAC agreement ensures that Alumina will be able to maximise value for shareholders and makes it a more attractive acquisition target.

Company Profile

Alumina Ltd. is a forwarding office for Alcoa World Alumina and Chemicals’ distributions. Its profit is a 40% equity share of AWAC profit, less head office and interest expenses. Its cash flow consists of AWAC distributions. AWAC investments include substantial global bauxite reserves and alumina refining operations. Declining capital and operating costs and a lack of supply discipline from China are likely to result in competitive pressures, but Alumina’s position in the lowest quartile of the industry cost curve is defensive.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Air Products contribute long-term contract and high switching cost to gas industries

Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. Demand for industrial gases is strongly correlated to industrial production. As such, organic revenue growth will largely depend on global economic conditions.

Since Seifi Ghasemi was appointed CEO in 2014, new management has launched several initiatives that drastically improved Air Products’ profitability, raising EBITDA margins by over 1,500 basis points. Air Products is poised for rapid growth over the next few years due to its 10-year capital allocation plan. The industrial gas firm aims to deploy over $30 billion during the decade from fiscal 2018 through fiscal 2027 and has already either spent or committed roughly $18 billion of that amount.

Financial Strength

Narrow-moat-rated Air Products announced that it will invest $4.5 billion in a blue hydrogen complex in Louisiana, expected on stream in 2026. The project will produce over 750 million standard cubic feet per day of blue hydrogen. A portion of the blue hydrogen will be injected into Air Products’ existing 700-mile Gulf Coast pipeline network, which is fed by around 25 projects including the firm’s Port Arthur facility (a blue hydrogen project that has been operational since 2013). Air Products recently announced its updated capital deployment plan and aims to invest over $30 billion during the 10-year period from fiscal 2018 to fiscal 2027.

Management has indicated that maintaining an investment-grade credit rating is a priority. The company has used proceeds from its divestments of noncore operations (including the spin-off of its electronic materials division as Versum Materials in 2016 and the sale of its specialty additives business to Evonik in 2017) to reduce debt and fuel investment.The company held roughly $8 billion of gross debt as of Dec. 31, 2020, compared with $6.2 billion in cash and short-term investments. Liquidity includes an undrawn $2.5 billion multicurrency revolving credit facility, which is also used to support a commercial paper program.

Bulls Say’s

  • Air Products is poised for rapid growth due to business opportunities that drive its ambitious $30 billion capital allocation plan.
  • After acquiring Shell’s and GE’s gasification businesses in 2018, Air Products is the global leader in this segment and is poised to benefit from growing coal gasification in China and India.
  • The company’s focus on on-site investments will result in a derisked portfolio with more stable cash flows.

Company Profile 

Since its founding in 1940, Air Products has become one of the leading industrial gas suppliers globally, with operations in 50 countries and 19,000 employees. The company is the largest supplier of hydrogen and helium in the world. It has a unique portfolio serving customers in a number of industries, including chemicals, energy, healthcare, metals, and electronics. Air Products generated $8.9 billion in revenue in fiscal 2020.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Weatherford to benefit from oil market’s recovery from COVID-19

When CEO Mark McCollum came aboard in March 2017, many wondered whether it was the dawn of a new era for Weatherford International. McCollum made solid progress in turning Weatherford around in 2018, with rapid improvement in profitability thanks to the companywide transformation plan. But this improvement wasn’t quick enough for the highly leveraged company’s creditors, which forced Weatherford into bankruptcy in 2019.

Weatherford emerged from bankruptcy in December 2019 having shed most of its debt. Shortly after, the coronavirus oil market downturn battered the company just as it was getting back on its feet. Given many abortive attempts at turning Weatherford around, many investors are refusing to give the company another chance. While McCollum left in 2020, he laid the groundwork for improvement that should be carried on by the company’s new leadership under CEO Girish Saligram.

Financial Strength:

Weatherford’s balance sheet is somewhat weak, but it is expected to ride out the rest of the oil market downturn without major financial distress. Weatherford has about $1.2 billion in available cash and no debt coming due until 2024. The company posted solid free cash flow of $135 million in 2020 despite very weak oil markets. In 2021, the company won’t have the benefit of working capital inflows, but it is still expected to be slightly positive in total free cash flow. In any case, it should have enough liquidity to meet any cash outflows as COVID-19 wreaks havoc on oil markets in 2021. Improving profitability in subsequent years should drive Weatherford solidly into positive free cash flow territory, despite a very heavy interest burden.

Bulls Say:

  • Weatherford has some hidden gems in its portfolio whose value will be revealed with the divestiture of loss-making business lines and streamlining the company. 
  • The company’s managed pressure drilling technology will become increasingly sought after as wellbores move into deeper, harsher environments.

Company Profile:

Weatherford International provides a diversified portfolio of oilfield services, with offerings catering to all geographies and different types of oilfields. Key product lines include artificial lift, tubular running services, cementing products, directional drilling, and wireline evaluation.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Newcrest’s Numerous Development Projects Maturing Nicely; Shares Remain Undervalued

the large resource base, low-cost position, and the company’s record. Barring a dip in fiscal 2024 and 2025, when the company assumes Telfer exhausts, Newcrest expects gold production to remain steady around 2.0 million ounces a year for the next decade based on the projects it has in hand. The outlook for copper production is similarly relatively flat, around 140,000 tonnes a year, but should step up from around 2029 to over 170,000 tonnes a year. Neither outlook–for gold or copper production–sounds too exciting. But beneath that apparent steadiness, the forecasts show how far Newcrest has come to offset the inevitable decline in grade at Cadia and the possible closure of Telfer.

Company’s Future Outlook

Our AUD 29.50 fair value estimate for Newcrest after incorporating the refined development plans for Havieron and Lihir. However, we continue to incorporate it separately into our fair value estimate, and the latest prefeasibility study supports our estimated standalone valuation of about AUD 2.50 per share, which is less than 10% of our overall fair value estimate. The company expects all-in sustaining costs to roughly have by fiscal 2030. In part, that depends on the copper price; Newcrest assumes USD 3.30 per pound longer term, which is above our USD 2.50 per pound assumption from 2025, but nevertheless we expect the company to remain a low-cost gold producer and well placed relative to peers.

We think these deposits have been somewhat forgotten by the market, but they contribute just over 10% to our fair value estimate, and we think the market could reasonably quickly be reminded of the valuable optionality they bring. From the base cases that Newcrest outlined for Telfer, Havieron, and Red Chris, we think the upside potential at Red Chris is likely to be the most substantial of the three, but it’s also longer-dated. The transition from lower-grade open-pit ore to bulk underground mining is expected

Company Profile 

Newcrest is an Australia-based gold and, to a lesser extent, copper miner. Operations are predominantly in Australia and Papua New Guinea, with a smaller mine in Canada. Cash costs are below the industry average, underpinned by improvements at Lihir and Cadia. Newcrest is one of the larger global gold producers but accounts for less than 3% of total supply. Gold mining is relatively fragmented.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.