Tag: Iron

was more than triple the AUD 80 million profit from first-half 2020. Adjusted net profit was AUD 256 million versus AUD 56 million a year ago, modestly below our AUD 267 million forecast.

 The first-half profit benefited from an AUD 18 million pretax impairment reversal relating to the value of the company’s ore stockpiles at Prominent Hill. Adjusted EBITDA nearly doubled to AUD 561 million. Operating cash flow generation of AUD 460 million in the half was strong and allowed the company to fund all of its capital initiatives, as well as repay all debt. 

Shares remain overvalued, a function of the elevated copper price, in turn a function of both supply challenges and transitory stimulus. Of late, the copper price has started to retreat and has fallen to around USD 4 per pound from record levels of nearly USD 5 per pound in May 2021. Oz Minerals remains very busy on the development front. 

Company’s Future Outlook

It lowers fair value estimate for Oz Minerals by 5% to AUD 15.70 per share. The reduction primarily reflects an approximate one-third increase in the expected capital expenditure to develop the Prominent Hill shaft to around AUD 600 million. The capital cost inflation reflects inflation in commodities and service costs, as well as some scope changes. In the rest of the year, the company expects to update development studies for the West Musgrave nickel/copper project–including an updated estimate of reserves and resources–and the Carajas East, Carajas West, and Centro Gold projects in Brazil. The pipeline remains rich, continues to build and advance, and Oz Minerals is in a strong financial position to execute. At the end of June 2021, the company had no debt and AUD 134 million cash.

Company’s Future Outlook

We also think the company should be able to fund annual dividends averaging over AUD 0.50 per share per year. Dividends are not the main game for Oz Minerals and the company is clearly focused on growth, but we think it’s positive that excess cash is being returned to shareholders. To this end, the company declared an AUD 0.08 per share interim and AUD 0.08 per share special dividend in the half, double last year’s interim dividend.

Company Profile

Oz Minerals Ltd (ASX: OZL) is a mid tier copper/gold producer. Prominent Hill produced about 100,000 tons of copper in 2020 with cash costs well below the industry average. The mine is a very small contributor to total global refined output of about 24 million tons in 2020. Finite reserves are a challenge, but management has extended life at Prominent Hill, albeit at a lower production rate. Life extension comes with development of the nearby Carrapateena mine, which started in 2020. Carrapateena should initially ramp up to produce at about 70,000 tons a year before expanding to just over 110,000 a year from around 2028. The acquisition of Brazil-based Avanco Resources adds volumes but the scale is smaller than the Australian assets, costs are higher and growth is likely to be incremental.

 (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.

Steel prices remain elevated as a result of robust demand from the automotive and construction sectors amid the global economic recovery from the corona virus shock of 2020. 

Both ferrous and non-ferrous scrap metal prices have improved substantially from their COVID-19-induced lows of April 2020. In turn, rising scrap prices drove continued improvement in Sims’ scrap volumes in the second half of fiscal 2021. The initial outbreak of the pandemic also weighed on scrap market volumes and prices in early fiscal 2021. 

Sims’ balance sheet remains well positioned amid the rough and tumble of scrap metal markets. Rising scrap prices and intake volumes drove working capital to its highest level in a decade. Nonetheless, Sims finished the year with an AUD8 million net cash position.

Company’s Future Outlook

With the conductive conditions expected to hold in steel and scrap metal markets into fiscal 2022, the company raise fiscal 2022 EBIT estimate by a sizable 145% to AUD 625 million. However, with appreciably lower scrap prices, and correspondingly lower operating margins anticipated longer-term, no change to AUD 11.50 per share FVE. It is expected that the scrap volumes to grow at a robust 20% in fiscal 2022 amid the current cyclical upswing. It is anticipated that Sims’ working capital balance to increase further during fiscal 2022—as a result of rising scrap volumes and buoyant scrap prices.

Company Profile

Sims Limited (ASX: SGM) was created from the 2008 merger of two leading metal-recycling companies: Australia’s Sims Group and America’s Metal Management. The company is the world’s largest publicly traded metal and electronics recycler, with roughly half of its revenue generated in North America and the balance split between Australasia and Europe.

 (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.

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 aluminum 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.

Key Investment Consideration

We expect aluminum Ltd’s (ASX: AWC) demand to grow considerably in the future, with global consumption benefiting from transport’s electrification. Supply in China that is managed by state-owned enterprises will prove sticky, with little capacity being cut even if aluminums prices decrease considerably. Alumina’s production has declined over the past five years as it closed capacity in a bid to reduce costs. With no major expansions planned, the company will continue to operate in maintenance mode.

Financial strength

At end 2020, AWAC (Alcoa World Alumina and Chemicals) had USD 361 million in net cash, marginally improved on 2019’s USD 340 million. And at end June 2021, Alumina had just 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.

Bull Says

• Alumina is a beneficiary of continued global economic growth and increased demand for aluminum 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 maximize value for shareholders and makes it a more attractive acquisition target.

Company Profile

Alumina Ltd. (ASX: AWC) 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.

Iron ore fines and pellets production surpassed the previous quarter by 11% to 84 million tones, supporting sales volumes to a total of 75 million tons, up 14% from the previous quarter. Elevated prices for Vale’s most important commodity more than offset a hit to cash costs from higher maintenance, equipment, and transportation costs. At our unchanged fair value estimate of USD 19, Vale’s shares trade at a 10% premium with the elevated iron ore price more than compensating for any residual concerns about their tailings dam disasters.

This quarter, Vale realized a sky-high average iron ore fines price of USD 183 per ton, up from USD 89 per ton at the same time last year. Vale is poised to ramp iron ore output in the second half with dry season and full capacity signaled from Serra Leste and Fábrica mines supporting the group’s unchanged full year target. Currently, production capacity is at 330 million tones and this is on track to increase to 400 million tons by the end of 2022, and to 450 million tones thereafter. This will ensure reliable supply is available, providing a buffer to unexpected operational challenges and swing capacity to meet strong demand.

Advancements have also been made in Vale’s base metals business. The Reid Brook deposit as part of the Voisey’s Bay Mine Expansion project has started production. The project represents a small step in the portfolio towards electrification and decarburization, but the investment is dwarfed by the importance of iron ore to Vale.

Company’s Future Outlook

We expect strong profitability to continue into the second half, principally a function of the still-lofty iron ore price. Nickel and copper suffered from the Sudbury labor disruptions causing stoppage expenses and softer production. Vale has put their nickel and copper guidance for the full year under review and we’ve reduced our full year group volume forecasts by 10% to 15%. However, with Returns and earnings from iron ore currently so strong, we View the impact as negligible.  The second part of the project, Eastern Deeps mine, is expected to start up in the second half of 2022. By 2025, the two mines are anticipated to contribute to an additional annual production of 40,000 tons of nickel, 20,000 tons of copper and 2,600 tons of cobalt as by-products

Company Profile

Vale is the world’s largest iron ore mine and one of the largest diversified miners, along with BHP and Rio Tinto. Earnings are dominated by the bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal. The base metals division is much smaller, primarily consisting of nickel mines and smelters with a small contribution from copper.

(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.

The most material change was to the natural gas liquids pricing, as not only has natural gas liquids pricing increased materially recently, but Antero’s ability to extract wider differentials has improved due to tighter end markets.

The revised guidance now shifts to a midpoint of $0.20 per million cubic feet, or mcf, from an earlier midpoint of $0.15 per mcf.

Antero continues to generate substantial free cash flow in this environment. Net debt fell by over $150 million during the quarter, due in part to free cash flow of $77 million.

Total debt now stands at $2.4 billion, and leverage at a very reasonable 1.7 times. Antero’s expectations regarding being below $2 billion in absolute debt and 1 times leverage in 2022 align with our model, and are reasonable.

Company Profile

Antero Resources, based in Denver, engages in the exploration for and production of natural gas and natural gas liquids in the United States and Canada. At the end of 2020, the company reported proven reserves of 17.6 trillion cubic feet of natural gas equivalent. Production averaged approximately 3,578 million cubic feet of equivalent a day in 2020 at a ratio of 33% liquids and 67% natural gas.

(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.

In its home market, Fletcher has strong brands and a leading distribution channel, and it dominates market share in key categories. The building materials segment in general, however, is subject to easy product substitution, low switching costs, and limited pricing power, making a competitive advantage difficult to sustain. Together with a poor track record of acquisitions, Fletcher has been unable to earn a sustainable return above its cost of capital.

Key Aspects

• A number of Fletcher’s businesses have good competitive positioning, including the PlaceMakers distribution business and its plasterboard operations. But earnings visibility and returns on capital are low, given a complex structure.
• The recovery in New Zealand and Australian housing construction is nearing. However, the associated cyclical benefit to Fletcher’s earnings is priced in.
• Fletcher has divested its Formica business and is backing away from commercial construction. But Fletcher could benefit from a more broad-based restructure to refocus on its core businesses.

Company Profile

Fletcher Building is the largest building materials company in New Zealand, after it emerged from the Fletcher Challenge group in 2001. Its diverse range of business interests span building product manufacture and distribution in New Zealand and Australia, as well as commercial and residential property development. Operations have been refocused on New Zealand and Australia, following divestment of the global laminates business in fiscal 2019.

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.