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Basic Materials Roundup: Market Talk

30 Jul 2018 8:20 am

The latest Market Talks covering Basic Materials. Published exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

0751 GMT - Air Liquide's second-quarter recurring operating profit of EUR1.62 billion missed consensus by 4% and is a weak spot amid an otherwise positive set of results, according to Liberum. This quarter several large projects began and may take some time to reach peak profitability, Liberum says. As a result Air Liquide may need to lower its 2018 margin and earnings guidance, the bank says. Sales are in line with expectations and net profit of EUR1.04 billion is better than expected, the bank says. Air Liquide trades 2.8% lower at EUR108.35.(nathan.allen@dowjones.com)

0748 GMT - Yields on Air Liquide bonds fall after the French industrial gases producer reported Monday a 12.1% net profit increase to EUR1.04 billion during the first half of the year. Revenue, however, fell 1.3% to EUR10.16 billion, partly due to a weakening dollar against the euro, the company said. Yields on the 1.25% March 2028 bond drop to 1.121% from 1.144% before the announcement, before recovering slightly to last trade at 1.135%, according to Tradeweb.(lorena.ruibal@wsj.com; @lorena_rbal)

0035 GMT - Citi is puzzled by Sandfire's forecast for flat annual gold production given the company has said the 1st ore from the high-grade Monty copper deposit in Western Australia would come by the end of 2018. So is Sandfire pushing back mining such product until after mid-2019? Citi suspects so. The investment bank's forecast has been for the Sandfire's FY coper output to be 73,000 tons, but the company is only forecasting 63-67,000. Citi also sees production rising to 87,000 in the year starting next July. Shares slumped 8.3% on Friday, the most in 2 1/2 years, and are down a further 7.6% today. That puts Sandfire down 25% from last month's record high and at near-4-month lows. (david.winning@wsj.com; @dwinningWSJ)

0021 GMT - Citi sees lots to like in OceanaGold's 1H results, including a surprise A$0.01/share interim dividend and a 40% plunge in all-in costs/ounce from 1Q to 2Q at its Haile mine in America to US$573. That suggests the operation, purchased in 2015, is "through the worst of its teething troubles," the bull says. Shares are up 1.2%, putting the month's jump at 8.2%. (david.winning@wsj.com; @dwinningWSJ)

0009 GMT - BHP Billiton's shale deal won't just bolster its bank balance but unlock "many additional benefits," says Credit Suisse, "albeit somewhat difficult to quantify." For one, it frees up management to focus on other things. It also clears up BHP's balance sheet and shows the market the miner can execute to plan, the investment bank adds. After jumping 2.3% Friday on the deal news, shares in Australia have started down 0.2%. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

[Dow Jones] Morningstar has mixed feelings on BHP Billiton's shale sale, although the price looks on balance to be a fair one. It wonders if BHP would have been better off keeping the shale business, given it has made great strides in improving the unit's efficiency and, "in general, we think greater investment choices bring a mild benefit." But, with a deal struck, BHP now needs to work out how to return the cash to shareholders. "There are several options, but each has pros and cons for different shareholders," Morningstar notes. For example, a special dividend would be great for Aussie investors which could benefit from franking credits, but is unlikely to be tax effective for foreign shareholders. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

[Dow Jones] The risks tied to Independence's Nova project are mostly in the rear-view mirror, and expectations of a rising output rate at Tropicana will likely help the stock gain strength in the year ahead, says RBC. "For those who missed the late Friday release, the company turned in a strong quarter to round out FY18," it says. Nova met continued ramp-up expectations, while Tropicana also produced more gold at a much lower cash cost than RBC's forecast. It thinks the stock could also benefit in future from exploration success or nickel price gains, as the miner "moves into its strongest free cash flow outlook period since the acquisition of Nova several years ago." Independence last traded at A$4.79/share. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

[Dow Jones] Ongoing iron-ore price discounts sap some of Bell Potter's bullishness for Fortescue Metals. The broker cuts its target to A$5.45 from A$6.30, although it keeps a buy rating on the stock. "We have applied more conservative iron-ore price discounts and combined with higher costs and capex have cut our earnings for FY18 by 19% and FY19 by 42%," Bell Potter says. The target is still roughly 25% above Fortescue's last traded price of A$4.35 and Bell Potter says it expects Fortescue to continue to generate plenty of cash. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

[Dow Jones] Following an inline 1H result from OceanaGold, attention now turns to the next phase of mining at its Haile operation in the U.S. UBS sees permitting to access high-grade underground ore at Haile as a key catalyst which should happen in 2H. "We continue to watch this process closely, a delay could risk long term upside expectations," the bull says. OceanaGold produced 268,597 oz of gold in 2Q, prompting UBS to view upgraded guidance of 500,000-540,000 oz in mid-June as increasingly conservative. (david.winning@wsj.com; @dwinningWSJ)

[Dow Jones] Sandfire Resources's quarterly update beat UBS's production and cost forecasts, but its outlook rattled the bear a tad. Sandfire dug up 17,867 tons of copper in the fourth quarter at a cost of US$0.80/lb, but UBS doesn't think this run rate will be sustained into FY19. Annual guidance of 63,000-67,000 tons of copper at US$1.00-US$1.05/lb suggests as much, falling short of the investment bank's prior projection for 68,000 tons at US$0.88/lb. "While Monty will enter production on schedule, the initial ore will be lower than reserve grade," UBS says. "The costs are also to be higher from greater haul distance and underground costs related to narrower stopes." So, its FY19 and FY20 earnings forecasts are downgraded by 5% and 3%, respectively, to reflect higher mining costs from Monty and lower grades. (david.winning@wsj.com; @dwinningWSJ)

[Dow Jones] Rising cash flow and returns have been attracting investors back to Australian mining stocks over the past year. But their sojourn may be brief. UBS thinks a trade war would be "likely to impact free cash flow and thus returns," which could spark a fresh exodus of those investors. The bank thinks base metal producers will be most at risk, and pure-play bulk miners the least. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

(END) Dow Jones Newswires

July 30, 2018 04:20 ET (08:20 GMT)

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