Tag Archives: Uranium

article 3 months old

Hope Builds For Uranium While Spot Slides

By Andrew Nelson

While spot prices continue to falter, many in the market are growing increasingly upbeat about the prospect for uranium prices and the share prices of producers. On top of traditional users like the US, Japan and Europe, there is an increasing amount of ongoing nuclear plant construction across emerging markets and in Southeast Asia.

At the same time, China has embarked on a huge planning and construction program and Japan’s sleeping reactors are slowly coming back on-line. Yet mid to long term prices haven’t budged in months and the spot price continues to slowly trickle lower.

Over the past year it seems the he spot uranium market has been bouncing off a bottom in the neighborhood of US$50/lb. It has tried a few times to push a little higher and between the spurts it has dropped a little lower on occasion. It seems that for the best part of the last year, there are few buyers at spot prices over US$50/lb and few sellers below that mark.

Canadian research house Raymond James has just jumped back into the uranium market and after looking at the ups and downs of both the demand and supply sides, the company predicts the spot uranium price will begin to move up again late this year and into 2013. Analysts are penciling in US$70/lb once we reach an expected global supply deficit in 2014-16.

Raymond James expects to see an average US$53.50/lb spot uranium price for 2012, which implies some limited upside from current levels. Spot prices should then increase to US$63.00/lb in 2013, US$72.50/lb in 2014 and US$75.00/lb in 2015.

For long-term investors, the increased levels of activity in the nuclear energy space and the growing amount of optimism in the broker/analyst space could well be pointing to a nuclear renaissance of even greater proportions than optimistically forecast. One day.

In the mean time, we’re still stuck with sluggish demand, a widening gap between buyers and sellers and spot prices that have really gone nowhere for the best part of a year.

Last week was not much different than the weeks and months prior. Industry consultant TradeTech reported just two sales comprising 400,000 pounds over the week. That makes it 8 straight weeks that transaction volumes have been below 500,000 pounds, with annual year-to-date volume now lagging 2011 volumes by 13 million pounds.

Reluctant sellers finally gave in and dropped offer prices over the course of last week in an effort to close some deals, but the move ultimately saw buyers drop bid prices and back away from the market. TradeTech’s Weekly U3O8 Spot Price Indictor slipped another US$0.25 to US$49.75 per pound, making it the first time the price has fallen below US$50.00 per pound since September 1, 2011.

TradeTech notes the majority of sellers are convinced that the spot price must be near its bottom and that buyers will almost have to emerge in coming weeks. This is especially so given the US$50.00 spot price barrier has been broken. Yet while the consultant notes anecdotal evidence of emerging interest and a number of new potential buyers sniffing around, there was still no new official demand as yet.

There was a bit of new speculative demand noted in the term markets, but no sales were conducted. TradeTech’s mid and long-term price indicators remained unchanged at US$54.50 and US$61.00 respectively.

For a more in-depth profile of the current dynamics of the uranium and nuclear energy markets, see Uranium Price Upside Ahead,  
 

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article 3 months old

Uranium Price Upside Ahead

- Global nuclear demand ramping up again
- Global supply growth falling behind
- Deficit and price increases expected
- Paladin among preferred producers
 

By Greg Peel

Last year's Fukushima accident has sent the global uranium market into a spiral of uncertainty ever since. At the very least, participants have been unsure as to what Japan intends with regard to future nuclear power production, and as to whether or not its stocks of uranium would hit the market. This has stopped buyers being keen, while sellers have been reluctant at low prices. Japan has not provided the only area of uncertainty nevertheless, given nuclear programs from Europe to China have been largely halted for a rethink.

The spot uranium price has found a bottom at US$50/lb, it would appear. It briefly traded below this level soon after Fukushima, has tried to push higher more than once, and is now back at US$50/lb once more. It seems that under 50, operating utilities are keen to pick up supply at what's seen as a reasonable price. They do not, however, appear keen to chase the price.

Despite this apparent bottom in the spot price, the share prices of global uranium producers have continued to slip away. Uncertainty is bad enough for producers and consumers, but it's even worse for investors. With producer prices now historically low on a relative basis, Canadian research house Raymond James has elected to return to the market, and resume coverage of uranium stocks. Weighing up all the pluses and minuses on both the demand and supply sides, Raymond James suggests the spot uranium price will begin to move up again late this year and into 2013, and the analysts are looking for US$70/lb once we hit the expected global supply deficit of 2014-16.

Raymond James is recommending investors look to get set in uranium producer stocks sooner rather than later. There are several key industry catalysts to consider.

Shortly after Fukushima, China halted its rapid-fire nuclear plant building program in order to review safety protocols. With the review completed, Premier Wen Jiabao gave preliminary approval to a new plan in May. Raymond James believes this approval paves the way for China's building program to recommence by year-end, albeit the pace will be pulled back to a more measured level than the frantic ramp-up pre-Fukushima, with a more diligent focus on safety. China nevertheless is planning a whopping 197 reactors, with some already under construction, on top of 433 in operation globally. Raymond James expects large Chinese utilities to resume buying large quantities of uranium.

After Fukushima, the Japanese government shut down all 50 of the country's reactors – some for good, and others for maintenance – as a rethink of nuclear policy was undertaken. The government warned of subsequent electricity black-outs in the most nuclear-reliant industrial areas of Osaka and Kyoto by the summer peak demand season. Recently the government has approved the restart of two reactors, despite popular opposition.

Raymond James offers a number of reasons why further restarts are likely, beginning with the aforementioned forecast summer black-outs. Without nuclear providing the usual 30% of energy needs, Japan has been forced to import large amounts of fossil fuels the cost of which, for the first time in over three decades, has sent Japan's trade balance into deficit. With such consumption has come a big blow-out in carbon emissions. Having undergone a safety review, plant operators are now very confident about ramping up once more. Now that two reactors have indeed restarted, popular opposition should begin to soften.

The greatest source of uranium market uncertainty has been that of Japan's ongoing policy. Had Japan decided to cease nuclear power production for good, the result would have been both a huge reduction in global uranium consumption and the country's extensive stockpiles would have hit the market, to add insult to injury. However, significant suppliers Cameco, Uranium One and Kazakhstan's state-owned Kazatomprom have all noted some deferrals but no actual end to deliveries of uranium to Japan, and in the first quarter Cameco's sales to Japan actually increased from previous levels. Raymond James expects the next round of Japanese reactor restarts will commence in early 2013.

On the supply side, Russia's “megatons to megawatts” agreement, signed in 1993, will expire in 2013 with Russia not interested in any extension. The agreement sees highly enriched uranium (HEU) from Russian warheads blended down for use in reactors in the US and Europe. In 2011, the HEU agreement provided around 13% of total global uranium supply, bridging the deficit gap between mine supply and total demand. Raymond James expects consumers to begin sourcing new traditional supply contracts ahead of the HEU expiry.

On the demand side, Fukushima has clearly diluted nuclear power plans in the likes of Japan and Germany, while other countries contemplating their first nuclear energy forays have shelved such plans for now. However, the World Nuclear Association believes the current number of global reactor plans are actually higher now than they were pre-Fukushima. Progress will be slower given greater attention to safety, but global demand for electricity will not abate, particularly in Asia (including India) and the Middle East, where state-owned utilities dominate and public opinion is not sought.

Not only has Fukushima forced a pullback on the demand side, but low post-Fukushima uranium prices have also sparked delays or deferrals of planned high-cost supply projects across the globe, including BHP Billiton's ((BHP)) Olympic Dam and Energy Resources of Australia's ((ERA)) heap leach project at Ranger. Even the mighty Kazatomprom has halted growth plans. Raymond James estimates new uranium production projects require a uranium price of at least US$60/lb to be viable.

Given few high-grade discoveries of note in recent times, problems at significant operating sites such as Ranger and Rio Tinto's ((RIO)) Rossing as well as others, and the upcoming end of HEU, global uranium supply growth is going to fall behind the pace of demand growth. Raymond James considers this a very bullish scenario for pricing, with the world facing a supply deficit in 2014-16.

The result is a forecast of an average US$53.50/lb spot uranium price from the analysts for 2012, increasing to US$63.00/lb in 2013, US$72.50/lb in 2014 and US$75.00/lb in 2015. Raymond James' longer term price (2016-beyond) sits at US$70.00/lb.

In resuming coverage in the uranium space, Raymond James has selected to cover three preferred large producers, two juniors and one uranium stock ETF, all of which are listed on the Toronto Exchange. Aside from the biggest private sector producer – Cameco – Raymond James has selected dual-listed Australian-based producer Paladin Energy ((PDN)).

After two years of wobbly and inconsistent performance from Paladin's two Namibian mines, Raymond James now believes a corner has been turned. Costs have been cut, a 2013 guidance upgrade was impressive, and the market should now become more comfortable with Paladin's ability to service its US$1bn debt burden. As the world's largest uranium producer without a strategic partner, Paladin is a takeover target as far as the analysts are concerned. 


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article 3 months old

The Short Report

By Chris Shaw

The largest changes in short positions for the week from July 10 involved companies both in and out of the top 20 largest short positions, with a fairly even spread between significant increases and decreases in total positions.

Among the increases the two largest were in Henderson Group ((HGG) and Yancoal new shares ((YALN)). Shorts for Henderson rose to 3.61% from 0.83% the week prior, which followed at least one cut to earnings forecasts in the market as lower performance fees are being factored into the outlook for the company.

In Yancoal, short positions in the new shares increased to 3.62% from 0.85%, this as the market positions itself in the newly-listed coal play that was created by the merger of Yancoal of China and Australia's Gloucester Coal. While growth options appear reasonable, the major issue for the market appears to be high debt levels and a small free float of shares.

While the ramp-up of the Boseto project continues, earnings forecasts for Discovery Metals ((DML)) were cut modestly after the group's June quarter production report. For the week from July 10 short positions in the stock rose to 5.25% from 3.63%, likely reflecting some concerns with respect to the ramp-up process.

With respect to falls in short positions, the largest was in Mesoblast ((MSB)) where total positions declined to 3.65% from 6.46%. The latest news of note was some positives from a competitor's stem cell tests for heart attack victims, which is thought to be a positive for Mesoblast's own cardiac therapy.

In Iluka ((ILU)), which is one of the top 20 short positions in the market, the week from July 10 saw total shorts fall to 7.96% from 9.94%. The change in positions came after the company's quarterly production report, which was seen as broadly in line with expectations given it came just a few days after sales guidance for the year had been lowered.

Companies making up the top 20 short positions continue to be centred on certain sectors, with consumer discretionary plays leading the way. Among the largest positions are JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Flight Centre ((FLT)), Billabong ((BBG)), Carsales.com ((CRZ)) and Myer ((MYR)).

Building materials and associated stocks are also well represented given CSR ((CSR)), Boral ((BLD)) and GWA ((GWA)) all make the top 20, while resource stocks in the list include Paladin ((PDN)), Iluka and Alumina Ltd ((AWC)).

Shorts in St Barbara ((SBM)) fell to 2.51% from 3.75% leading into the company's quarterly production report, which was helped by better volumes and gold grades. Operational improvements at the Allied Gold assets remain an key variable for investors in St Barbara.

Dexus ((DXS)) enjoyed a fall in shorts to 0.27% from 1.27% the week before, this leading into next month's profit result where any strategic review announcements are likely to be of interest to the market.

In terms of monthly changes in positions for the period from June 15, it was Henderson Group and Discovery Metals that again led the way with increases of just over three percentage points and two percentage points respectively.

The next largest increases were in Alumina Ltd, where positions rose to 6.31% from 4.49% in the month and in Flight Centre, where positions have increased to 13.68% from 11.93% in the same period.

The discretionary retailers are among those where short positions have fallen the most for the month from June 15, with Myer's positions declining by more than four percentage points, David Jones ((DJS)) seeing a better than three percentage point decline and JB Hi-Fi's positions declining by just over 2.5 percentage points.

Shorts in Mesoblast and in Echo Entertainment ((EGP)) also declined by more than 2.5 percentage points over the month.

One increase in short positions over the past month of interest to RBS Australia has been in Nufarm ((NUF)), where positions have increased from less than 2.2% to more than 2.5%. In the view of RBS the stock needs earnings upgrades to deliver further share price gains, something considered unlikely given a tough operational environment at present. RBS Australia rates Nufarm a Hold at present, while the FNArena database shows one Buy rating, three Hold recommendations and three Sell ratings.

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 20487424 98850643 20.73
2 FLT 13684263 100047288 13.68
3 FXJ 296687617 2351955725 12.61
4 CRZ 26390913 233689223 11.29
5 LYC 183100463 1715029131 10.68
6 COH 5693525 56929432 10.00
7 BBG 39755323 410969573 9.67
8 HVN 100515552 1062316784 9.46
9 GNS 75429555 848401559 8.89
10 CSR 44148544 506000315 8.73
11 PDN 71314995 835645290 8.53
12 ILU 33334008 418700517 7.96
13 MYR 46393558 583384551 7.95
14 LNC 39399260 504487631 7.81
15 WTF 15613320 211736244 7.37
16 TRS 1876854 26071170 7.20
17 DJS 36703400 528655600 6.94
18 AWC 153868681 2440196187 6.31
19 BLD 45219326 758572140 5.96
20 GWA 17781381 302005514 5.89

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

Technical limitations

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article 3 months old

Uranium, Two Pounds For A Benny

By Andrew Nelson

It was yet another dull week on the spot uranium market last week, marked by slim volumes and another minor price decline. As of Friday, a US$100 bill sporting the inscrutable face of Benjamin Franklin, will now buy you two pounds of uranium.

Industry analyst TradeTech reported just 3 transactions last week, with only 250,000 pounds changing hands. Of the three deals booked, one was conducted by a seller keen to move some stock, which exerted some minor downward pressure on spot prices.

Also affecting trading was news that Honeywell will not restart production at its Metropolis Works conversion facility, operated by ConverDyn. The company said the plant could remain closed for as long as 12-15 months in order to undertake safety upgrades ordered by the US Nuclear Regulatory Commission.

ConverDyn then came out and said that it is still evaluating the scope and timing of the improvements, along with its contract and delivery commitments, but hopes the shutdown will be temporary. In the meantime, 228 employees are to be laid off.

Whether the news is relevant or not to the daily grind of the uranium spot trading, it certainly did a good job of introducing even more uncertainty into what remains a very tentative market. The end result of low volumes, at least one motivated sell and new uncertainly was a US$0.25 decline in TradeTech’s Weekly U3O8 Spot Price Indicator to US$50.00.

There was no activity and only a little demand in the term market. None of it was new and all of it is coming from non-US utilities. TradeTech’s mid-term and long-term indicators remained unchanged at US$54.00 and US$61.00 respectively.

There were some signs of life on the conversion market, with offers coming in a bit higher given fears of an upcoming supply pinch because of the Metropolis Works. However, sellers stood pat in hopes offer prices will go even higher, so no sales occurred last week.

 
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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Brokers in the FNArena database were very active this week in changing recommendations, the eight brokers making a total of 11 upgrades and 21 downgrades in ratings during the period. Total Buy ratings now stand at 50.39%.

Among the upgrades was Atlas Iron ((AGO)), where JP Morgan upgraded to a Buy rating from Hold following changes to iron ore price expectations. While earnings estimates and price target for the stock have been lowered, the broker upgraded its rating on relative valuation grounds.

JP Morgan also upgraded Bank of Queensland ((BOQ)) to Neutral from Sell on the back of the bank selling some non-performing commercial property loans. Debt profile and credit rating remain issues for the bank but the risk to reward proposition is now better balanced in the broker's view.

The final upgrade for the week from JP Morgan was Fleetwood Corporation ((FWD)), The move to a Buy rating from Hold reflecting another accommodation contract won by the company. Along with modest increases to forecasts and price target, the contract win is also seen as giving greater clarity with respect to earnings in coming periods.

Citi has upgraded Beadell Resources ((BDR)) to Buy from Neutral following a review of its model, which includes some changes to estimates for the Tucano gold project in Brazil. In Citi's view, Beadell offers limited risk as it transitions to a producer later this year.

News Corporation ((NWS)) was also upgraded to Buy from Hold by Citi as the broker sees upside from the proposed split of the company. Factoring the move into its model sees Citi lift its price target for News.

Valuation has been the main driver of Macquarie's upgrade of Brambles ((BXB)) to Buy from Hold, as leading into next month's profit result the broker makes minor changes to its model. The new numbers have Brambles trading at an attractive level relative to historical multiples.

Seven West Media ((SWM)) enjoyed upgrades from both RBS Australia and UBS, both moving to Buy ratings from Hold previously. Value at current levels is a key driver in both cases, UBS also noting the stock offers an attractive dividend yield and earnings multiples at current levels. As well, RBS suggests the announcement of an equity raising should remove a recent overhang on the share price.

Valuation is also the driver for UBS upgrading Wesfarmers ((WES)) to Buy from Neutral, as a revision of expectations for the food and liquor sector has seen the broker push the stock to its preferred exposure.

Among the downgrades were Wotif.com ((WTF)), where both Macquarie and JP Morgan cut ratings to Hold from Buy. For JP Morgan the issue is increased competition from online travel agents at a time when bookings are likely to remain sluggish, while Macquarie's downgrade reflects a 10% gain in the share price since May.

ALE Property Group ((LEP)) similarly saw two downgrades by Macquarie and JP Morgan, this time to Sell from Hold ratings in both cases. The moves were prompted by recent revaluations which showed a modest decline, with Macquarie suggesting more can be expected in this regard in coming periods.

Changes to commodity price expectations have contributed to Citi downgrading both Alumina Ltd ((AWC)) and Grange Resources ((GRR)), the former to Sell from Neutral and the latter to Hold from Buy. Citi also sees ongoing pressure on pellet premiums for Grange as a headwind to earnings, while cautioning Alumina may need to raise further equity in 2013 if cash flow generation doesn't improve soon.

A change in analyst has prompted RBS Australia to downgrade Cabcharge ((CAB)) to Hold from Buy, the change reflecting caution with respect to the potential for service charge capping to act as a deterrent to investors.

CFS Retail ((CFX)) has been downgraded by Credit Suisse to Neutral from Buy on valuation grounds, the change reflecting recent outperformance by the stock relative to both the market and REIT peers. The broker has also downgraded Echo Entertainment ((EGP)) to Sell from Hold to reflect recent changes to its model that resulted in changes to earnings estimates and price target.

A sustained share price run for Coca-Cola Amatil ((CCL)) sees JP Morgan downgrade the stock to Sell from Neutral on valuation grounds. Earnings forecasts and price target are unchanged. Gindalbie ((GBG)) was similarly downgraded by the broker to Sell from Hold given a leveraged balance sheet and risks as the company moves into the commissioning stage on project.

IOOF Holdings ((IFL)) has been cut to a Hold rating from Buy by Deutsche Bank as the broker adjusted its model to account for changes to equity market assumptions. These changes have left the stock fair value in the broker's view.

JP Morgan has been active in adjusting ratings for resource stocks, downgrading both Paladin ((PDN)) and Mount Gibson ((MGX)) to Neutral ratings from Overweight previously. One issue for Paladin is the lack of progress in generating surplus cash flow, while the broker's downgrade of Mount Gibson is a relative valuation call following changes to iron ore price assumptions.

On the industrial side JP Morgan has also downgraded both Tassal Group ((TGR)) and WDS Limited ((WDS)), the former as volatile prices and warm water temperatures have seen earnings estimates cut and the latter as near-term earnings are under pressure from a lack of new contract wins.

BA Merrill Lynch has moved to a Hold rating on Navitas ((NVT)) from Buy given recent sustained share price outperformance, while UBS has similarly changed its rating on Woolworths ((WOW)) following its adjusted expectations for food and liquor sales in the coming year imply Wesfarmers is now better relative value.

Pattie's Foods ((PFL)) offered a trading update and Citi has responded by downgrading to a Hold rating from Buy. Cuts to earnings forecasts reflect changes to margin assumptions and Citi is factoring in a softer earnings growth profile going forward.

Outside of ratings changes, the major adjustments to price targets were cuts for Seven West Media, CSR ((CSR)), Grange Resources and Gindalbie. There were no significant increases to price targets during the week. 

Only Transurban ((TCL)) enjoyed a significant increase to earnings forecasts, while numbers were cut by more than 20% for the likes of Beadell, Whitehaven Coal ((WHC)), AWE Ltd ((AWE)), CSR ((CSR)), Yancoal ((YAL)) and Seven West.
 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
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Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 ATLAS IRON LIMITED Neutral Buy JP Morgan
2 BANK OF QUEENSLAND LIMITED Sell Neutral JP Morgan
3 BEADELL RESOURCES LIMITED Neutral Buy Citi
4 BRAMBLES LIMITED Neutral Buy Macquarie
5 FLEETWOOD CORPORATION LIMITED Neutral Buy JP Morgan
6 NEWS CORPORATION Neutral Buy Citi
7 QR NATIONAL Neutral Buy Deutsche Bank
8 SEVEN WEST MEDIA LIMITED Neutral Buy RBS Australia
9 SEVEN WEST MEDIA LIMITED Neutral Buy UBS
10 ST BARBARA LIMITED Neutral Buy Deutsche Bank
11 WESFARMERS LIMITED Neutral Buy UBS
Downgrade
12 ALE PROPERTY GROUP Neutral Sell Macquarie
13 ALE PROPERTY GROUP Neutral Sell JP Morgan
14 ALUMINA LIMITED Neutral Sell Citi
15 CABCHARGE AUSTRALIA LIMITED Buy Neutral RBS Australia
16 CFS RETAIL PROPERTY TRUST Buy Neutral Credit Suisse
17 COCA-COLA AMATIL LIMITED Neutral Sell JP Morgan
18 CSL LIMITED Neutral Neutral Citi
19 ECHO ENTERTAINMENT GROUP LIMITED Neutral Sell Credit Suisse
20 FORTESCUE METALS GROUP LTD Neutral Neutral Deutsche Bank
21 GINDALBIE METALS LTD Neutral Sell JP Morgan
22 GRANGE RESOURCES LIMITED Buy Neutral Citi
23 IOOF HOLDINGS LIMITED Buy Neutral Deutsche Bank
24 Mount Gibson Iron Limited Buy Neutral JP Morgan
25 NAVITAS LIMITED Buy Neutral BA-Merrill Lynch
26 PALADIN ENERGY LTD Buy Neutral JP Morgan
27 PATTIES FOODS LTD Buy Neutral Citi
28 TASSAL GROUP LIMITED Neutral Sell JP Morgan
29 WDS LIMITED Neutral Sell JP Morgan
30 WOOLWORTHS LIMITED Buy Neutral UBS
31 WOTIF.COM HOLDINGS LIMITED Buy Neutral Macquarie
32 WOTIF.COM HOLDINGS LIMITED Buy Neutral JP Morgan
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 SBM - 33.0% 33.0% 66.0% 3
2 BPT - 20.0% 20.0% 40.0% 5
3 SWM 63.0% 88.0% 25.0% 8
4 FWD 40.0% 60.0% 20.0% 5
5 HDF 50.0% 67.0% 17.0% 3
6 AWE 57.0% 71.0% 14.0% 7
7 SGP 43.0% 57.0% 14.0% 7
8 NWS 29.0% 43.0% 14.0% 7
9 BXB 86.0% 100.0% 14.0% 7
10 BOQ 25.0% 38.0% 13.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 CDD 75.0% 50.0% - 25.0% 4
2 ARI 100.0% 75.0% - 25.0% 4
3 GBG 80.0% 60.0% - 20.0% 5
4 GRR 100.0% 83.0% - 17.0% 6
5 IFL 33.0% 17.0% - 16.0% 6
6 NVT 33.0% 17.0% - 16.0% 6
7 CFX 43.0% 29.0% - 14.0% 7
8 PDN 43.0% 29.0% - 14.0% 7
9 CSR 25.0% 13.0% - 12.0% 8
10 CCL 25.0% 13.0% - 12.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 RRL 4.520 4.664 3.19% 7
2 NVT 3.783 3.853 1.85% 6
3 SGP 3.479 3.507 0.80% 7
4 FWD 13.568 13.656 0.65% 5
5 CDD 7.683 7.723 0.52% 4
6 PDN 1.863 1.870 0.38% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 SWM 3.253 2.390 - 26.53% 8
2 CSR 1.805 1.559 - 13.63% 8
3 GRR 0.820 0.728 - 11.22% 6
4 GBG 0.976 0.872 - 10.66% 5
5 SBM 2.300 2.067 - 10.13% 3
6 MGX 1.364 1.239 - 9.16% 8
7 ARI 1.400 1.290 - 7.86% 4
8 AGO 3.195 2.970 - 7.04% 8
9 AWE 1.974 1.870 - 5.27% 7
10 AWC 1.099 1.049 - 4.55% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 TCL 15.271 18.643 22.08% 7
2 PDN 1.847 1.987 7.58% 7
3 BTT 15.200 16.180 6.45% 4
4 AIO 33.338 34.325 2.96% 7
5 EVN 21.867 22.475 2.78% 4
6 ILU 106.513 109.375 2.69% 8
7 AIX 15.650 15.967 2.03% 6
8 ARI 19.350 19.675 1.68% 4
9 TEL 14.938 15.129 1.28% 8
10 LLC 91.675 92.600 1.01% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 BDR 5.567 3.533 - 36.54% 3
2 WHC 8.986 6.043 - 32.75% 7
3 AWE 9.557 6.714 - 29.75% 7
4 CSR 12.350 9.150 - 25.91% 8
5 YAL 15.867 12.167 - 23.32% 3
6 SWM 30.913 23.825 - 22.93% 8
7 WSA 29.550 23.667 - 19.91% 6
8 MGX 35.038 28.575 - 18.45% 8
9 GBG 6.317 5.233 - 17.16% 5
10 SFH 4.980 4.140 - 16.87% 5
 

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article 3 months old

Uranium Continues To Slide

By Andrew Nelson

Last week was another slightly down-week for uranium spot prices, with industry consultant TradeTech reporting just three transactions taking place. Total volume on the spot market was 400,000 pounds, with little activity in either the supply or demand side.

TradeTech notes the lack of any sort of firm demand is continuing to place downward pressure on spot prices. Sellers, for the most part, just don’t want to cut their prices and buyers remain speculative in nature.  This is a continuation of the prevalent trend over recent months and means the gap between willing sellers and buyers is continuing to increase.

Based on TradeTech’s assessment of the level at which it assumes a willing buyer and willing seller would do a deal, it’s Weekly U3O8 Spot Price Indicator finished last week at US$50.25 per pound, down US$0.35 from the previous week’s value.

Making the situation worse is news that Honeywell will not restart production at its Metropolis Works conversion facility until getting a green light from the US Nuclear Regulatory Commission about necessary safety upgrades.

While the news introduces new uncertainty into an already uncertain market, TradeTech notes that some in the market are hoping the news will actually translate into some upward price pressure not only on the conversion market, but also on the spot market as well. This could well be the case depending on how long Metropolis remains closed and how fast existing UF6 supply is taken up.

There is slightly better news from the mid- and long-term markets, with signs of new demand emerging. TradeTech is expecting  to see some significant increases in the third and fourth quarters, which it notes has reinforced  the hopes of some sellers that prices may being to strengthen.

But not yet. TradeTech’s Mid-Term and Long-Term U3O8 Price Indicators remained unchanged last week at US$54.50 and US$61.00 per pound.

With Japan off the nuclear radar for most of last year and Germany reducing nuclear generated power by 23%, there has understandably been an impact on uranium prices. Yet with worldwide nuclear power use down by 4% from last year, spot prices have at least remained steady. A recent report from Scotiabank notes these issues and expects a rebound in 2013.

The report cites a few supporting factors, such as the looming expiration of the Megatons to Megawatts program between the United States and Russia. The program allows the US to convert highly-enriched uranium from Russian nuclear warheads to low-enriched uranium for nuclear fuel. The expiry is expected to remove 24 million pounds from the market.

China intends to restart its nuclear energy program after conducting some safety reviews, planning to build 100 reactors by 2030 and 197 by 2050. This news is also expected to lend some support to uranium prices over the longer term.

With demand for uranium projected to increase by 3% a year as the developed world demands more electricity and given the reduced amount of mined uranium, which is currently insufficient to keep up with demand, prices will have to start moving up again. One day.


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article 3 months old

The Short Report

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By Chris Shaw

Increases in short positions for Australian stocks were far more pronounced than decreases in the week from July 3, as while only two companies saw positions decline by more than one percentage point there were 10 increases in excess of 1.5 percentage points.

The largest increase in shorts was in Gunns ((GNS)), where positions rose to 8.9% from 3.6%. The increase came prior to news the company was disputing an amended tax assessment and before the sale of the Portland Woodchip Export facility.

Shorts in CSR ((CSR)) also rose for the week to 9.08% from 6.19%, the changes coming before the group's AGM, where earnings guidance was revised lower. The company is seeing reduced volumes in building products and aluminium earnings are also under pressure, while at least one broker has expressed concerns about balance sheet pressures for CSR given current tough market conditions.

Aluminium market issues have extended to Alumina ((AWC)), where brokers have been cutting earnings forecasts and price targets to reflect market weakness. The market has picked up on this, as shorts in Alumina increased in the week from July 3 to 7.1% from 4.59% previously.

Short positions in Alesco ((ALS)) have also risen, increasing to 2.39% from 0.13% the week before as the market continues to adopt a wait an see approach to the bid for the company from DuluxGroup ((DLX)).

Primary Health Care ((PRY)) experienced a jump in shorts from 0.87% to 3.08% for the week, the news during the period being the company increasing its stake in Vision Eye Institute in an attempt to capture additional opthalmic revenues that the company can't otherwise capture.

While there has been little in the way of announcements from Mortgage Choice ((MOC)) of late short positions in the company rose for the week to 1.86% from 0.01%, which may be tied into signs of further softening in the residential housing market.

Shorts in Dart Energy ((DTE)) rose to just over 4.6% from 2.77% previously in the week as the company updated on Dart International, where a public offering in Singapore had previously been deferred to later this year.

Both Downer EDI ((DOW)) and Nufarm ((NUF)) experienced an increase in short positions of 1.56 percentage points for the week. For Downer EDI the change in positions came after news the group would be re-locating its locomotive manufacturing facilities, while for Nufarm the change came despite no specific announcements from the company.

The largest fall in short positions in the week from July 3 was in Metcash ((MTS)), where total positions declined to 4.51% from 6.00%. The change came on the back of a full year earnings result that largely met expectations, while positions were also adjusted to reflect a capital raising announced with the profit result.

Cabcharge ((CAB)) enjoyed a fall in shorts to 1.2% from 2.38% previously, this coming despite recent news the Reserve Bank of Australia is considering looking at reforming the current surcharging system for card transactions.

With most of the significant changes in short positions occurring outside the top 20 positions this list remains largely unchanged, with discretionary retail exposures continuing to dominate. JB Hi-Fi ((JBH)), Carsales.com ((CRZ)), Harvey Norman ((HVN)) and Flight Centre ((FLT)) remain among the largest positions, along with the likes of Fairfax ((FXJ)), Cochlear ((COH)), Iluka ((ILU)), Paladin ((PDN)) and CSR.

Among monthly changes to positions for the period from June 8 the largest increase for a stock was experienced by Alumina, while the retailers including Myer, JB Hi-Fi and David Jones all saw short positions fall by more than three percentage points for the month.

Elsewhere, RBS Australia points out in recent weeks short positions in OZ Minerals ((OZL)) have risen by around 0.5 percentage points to just over 2.0%. Short mine life and acquisition risk continue to impact on the company in the broker's view and are likely to continue to overhang the share price as management looks for a significant transaction to deliver some growth.

RBS also notes an on-market share buyback has been completed, which removes some support for the stock shorter-term. Adding in ongoing cost pressures at the Carrapateena project leaves RBS with the view a re-rating for OZ Minerals is unlikely in coming weeks.

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 20604482 98850643 20.84
2 FLT 13422790 100047288 13.42
3 FXJ 296270915 2351955725 12.60
4 CRZ 27003148 233689223 11.56
5 COH 6079087 56929432 10.68
6 LYC 181816905 1715029131 10.60
7 ISO 537351 5103165 10.53
8 ILU 41630980 418700517 9.94
9 HVN 99164903 1062316784 9.33
10 BBG 37888973 410969573 9.22
11 PDN 76443859 835645290 9.15
12 CSR 45952376 506000315 9.08
13 GNS 75476962 848401559 8.90
14 LNC 39758171 504487631 7.88
15 MYR 45595742 583384551 7.82
16 DJS 39663604 528655600 7.50
17 WTF 15133949 211736244 7.15
18 AWC 173253968 2440196187 7.10
19 TRS 1842956 26071170 7.07
20 MSB 18369445 284478361 6.46

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has been balanced in terms of changes to ratings by brokers in the FNArena database. Total Buy ratings now stand at 50.12% following 13 ratings upgrades and 14 downgrades.

Citi upgraded both ANZ Banking Group ((ANZ)) and Commonwealth Bank ((CBA)) to Buy ratings from Neutral previously, in both cases attracted to the yields. Price targets have been increased for both stocks.

Beach Energy ((BPT)) enjoyed an upgrade to Buy from Sell by BA Merrill Lynch, as the broker took the view recent share price weakness has been excessive and the market is in fact overly pessimistic about the group's Cooper shale assets. BA-ML also upgraded Brambles ((BXB)) to Buy from Hold as part of a resumption of coverage given the combination of a defensive exposure, balance sheet flexibility and valuation support.

UBS continues to have a bias to leverage over safety with respect to Australian building material stocks and given this the broker has upgraded to a Buy rating on CSR ((CSR)) from Neutral previously. The change follows cuts to forecasts and price target to reflect soft housing numbers and a weak aluminium price.

Credit Suisse doesn't agree leverage is the key attribute for the sector and has downgraded CSR to Sell from Hold post the market update by the company. For Credit Suisse a positive rating simply does not seem justified given there remains downside earnings risk in the current environment.

Changes to commodity price forecasts have prompted Credit Suisse to upgrade Evolution Mining ((EVN)) to Buy from Hold. The upgrade is accompanied by adjustments to earnings estimates but the price target has remained unchanged.

It is a similar story for Western Areas ((WSA)), with Credit Suisse upgrading to a Buy recommendation from Hold previously following changes to commodity price and forex assumptions. Earnings estimates have also been revised, the result being a cut in price target.

As well, Credit Suisse has upgraded Incitec Pivot ((IPL)) to Buy from Hold given potential upside from the broker's view increased ammonium nitrate capacity should be absorbed by the market in coming years.

In contrast, Citi takes the view the earnings downgrade cycle for Incitec Pivot will continue as higher gas prices are increasing costs at the same time as ammonium nitrate volumes are falling. This is enough for Citi to cut its rating to Hold from Buy.

With Lend Lease ((LLC)) securing $2 billion in equity for the Barangaroo project, BA-ML sees far less risk with the project now than had been the case. Some changes to its model have resulted in an increase in price target and BA-ML has upgraded to Neutral from Sell on the stock.

Some contract wins by Matrix Composites and Engineering ((MCE)) have seen JP Morgan lift earnings forecasts and price target for the stock. With the shares now trading around the broker's estimate of fair value, the rating has been upgraded to Hold from Sell.

Factoring in acquisitions has seen UBS adjust its model for Stockland ((SGP)), as the deals should boost growth even without an improvement in market conditions. To reflect this, the rating has been upgraded to Buy from Neutral.

Tough operating conditions have caused RBS Australia to factor in lower growth assumptions for Ansell ((ANN)), which pushes down earnings assumptions and price target. The changes drive a change in rating to Hold from Buy.

RBS has similarly downgraded its rating on Ramsay Health Care ((RHC)) to Sell from Hold, this due to current earnings multiples being seen as unattractive and the stock trading above five-year averages. Changes to forecasts for Iluka ((ILU)) given lower sales forecasts and a deteriorating operating outlook have also prompted RBS to downgrade the stock to Neutral from Buy. Price target has been lowered on cuts to earnings estimates.

Credit Suisse has been active in downgrading ratings as well, cutting BHP Billiton ((BHP)) to Hold from Buy as changes to commodity price expectations have impacted on earnings assumptions. The price target for the stock went south as well. For a similar reason the broker has downgraded its rating on Caltex ((CTX)) to Hold from Buy, while moving to Sell from Hold on Sandfire ((SFR)) and to Hold from Buy on Santos ((STO)).

Domino's Pizza ((DMP)) continues to perform solidly and to reflect this Macquarie has lifted its earnings estimates and price target. At current levels valuation multiples are less attractive, leading the broker to cut its rating to Neutral from Outperform.

Ongoing weakness in European markets in particular and potential cuts to pathology fees may weigh on earnings for Sonic Healthcare ((SHL)) going forward in the view of RBS, which is enough for the broker to downgrade to a Hold rating from Buy. 

An increasingly competitive environment is enough for Deutsche Bank to cut its rating on Telecom New Zealand ((TEL)) to Hold from Buy. The change comes after the TelstraClear acquisition by Vodafone, which is seen as evidence of more aggressive action in the market.

Macquarie has cut earnings forecasts and price target for UGL ((UGL)), this reflecting a slowing domestic economy and an associated lag in resource related project work. The changes are enough for the broker to cut its rating to Neutral from Buy.

Changes to price targets have been relatively modest over the week, with the largest increase for Domino's Pizza at just over 4% and the largest cuts around 5% for both Western Areas and BHP.

Transurban ((TCL)) has enjoyed the largest increase in earnings estimates at a little more than 20% on the back of June quarter traffic numbers. Resource companies dominated the cuts to earnings forecasts, with the likes of Iluka, Panoramic ((PAN)), Paladin ((PDN)) and Mount Gibson ((MGX)) seeing forecasts fall by 10-40%.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=119,106,121,100,82,140,149,132&h0=77,104,81,123,94,89,143,107&s0=40,21,29,4,35,34,10,16" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 AUSTRALIA & NEW ZEALAND BANKING GROUP Neutral Buy Citi
2 BEACH ENERGY LIMITED Sell Buy BA-Merrill Lynch
3 BRAMBLES LIMITED Neutral Buy BA-Merrill Lynch
4 COMMONWEALTH BANK OF AUSTRALIA Neutral Buy Citi
5 CSR LIMITED Neutral Buy UBS
6 EVOLUTION MINING LIMITED Neutral Buy Credit Suisse
7 ILUKA RESOURCES LIMITED Neutral Buy UBS
8 INCITEC PIVOT LIMITED Neutral Buy Credit Suisse
9 LEND LEASE CORPORATION LIMITED Sell Neutral BA-Merrill Lynch
10 MATRIX COMPOSITES & ENGINEERING LIMITED Sell Neutral JP Morgan
11 NEWCREST MINING LIMITED Neutral Buy JP Morgan
12 STOCKLAND Neutral Buy UBS
13 WESTERN AREAS NL Neutral Buy Credit Suisse
Downgrade
14 ANSELL LIMITED Buy Neutral RBS Australia
15 BHP BILLITON LIMITED Buy Neutral Credit Suisse
16 CALTEX AUSTRALIA LIMITED Buy Neutral Credit Suisse
17 COMMONWEALTH BANK OF AUSTRALIA Buy Neutral JP Morgan
18 CSR LIMITED Neutral Sell Credit Suisse
19 Domino's Pizza Enterprises Limited Buy Neutral Macquarie
20 ILUKA RESOURCES LIMITED Buy Neutral RBS Australia
21 INCITEC PIVOT LIMITED Buy Neutral Citi
22 RAMSAY HEALTH CARE LIMITED Neutral Sell RBS Australia
23 SANDFIRE RESOURCES NL Neutral Sell Credit Suisse
24 SANTOS LIMITED Buy Neutral Credit Suisse
25 SONIC HEALTHCARE LIMITED Buy Neutral RBS Australia
26 TELECOM CORPORATION OF NEW ZEALAND LIMITED Neutral Neutral Deutsche Bank
27 UGL LIMITED Buy Neutral Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 BPT - 20.0% 20.0% 40.0% 5
2 AUT - 20.0% 17.0% 37.0% 6
3 EVN 67.0% 100.0% 33.0% 3
4 AUB 50.0% 75.0% 25.0% 4
5 WSA 67.0% 83.0% 16.0% 6
6 BXB 71.0% 86.0% 15.0% 7
7 SGP 43.0% 57.0% 14.0% 7
8 NCM 75.0% 88.0% 13.0% 8
9 ANZ 25.0% 38.0% 13.0% 8
10 LLC 63.0% 75.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 CRF 67.0% 43.0% - 24.0% 7
2 DMP 50.0% 33.0% - 17.0% 6
3 ANN 29.0% 14.0% - 15.0% 7
4 UGL 86.0% 71.0% - 15.0% 7
5 SHL 63.0% 50.0% - 13.0% 8
6 STO 100.0% 88.0% - 12.0% 8
7 BHP 75.0% 63.0% - 12.0% 8
8 CQO - 25.0% - 33.0% - 8.0% 3
9 VBA 75.0% 67.0% - 8.0% 3
10 SFR 17.0% 14.0% - 3.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 DMP 8.332 8.675 4.12% 6
2 AUB 7.148 7.373 3.15% 4
3 VBA 0.440 0.447 1.59% 3
4 SGP 3.479 3.507 0.80% 7
5 LLC 8.926 8.986 0.67% 8
6 ANZ 24.256 24.319 0.26% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 WSA 5.792 5.483 - 5.33% 6
2 BHP 43.865 41.824 - 4.65% 8
3 AUT 3.828 3.738 - 2.35% 6
4 ANN 14.977 14.639 - 2.26% 7
5 NCM 33.200 32.575 - 1.88% 8
6 CQO 3.478 3.420 - 1.67% 3
7 UGL 14.209 14.031 - 1.25% 7
8 BPT 1.376 1.362 - 1.02% 5
9 BXB 7.450 7.386 - 0.86% 7
10 CRF 2.070 2.060 - 0.48% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 TCL 15.271 18.600 21.80% 7
2 BTT 15.500 16.180 4.39% 4
3 LLC 88.938 91.675 3.08% 8
4 WHG 10.400 10.650 2.40% 3
5 EVN 21.400 21.867 2.18% 3
6 FLT 211.713 216.000 2.02% 8
7 TEL 14.937 15.134 1.32% 8
8 CLO 8.100 8.167 0.83% 3
9 DMP 42.767 43.100 0.78% 6
10 NVT 23.714 23.857 0.60% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 ILU 190.488 109.600 - 42.46% 8
2 PAN 9.275 5.350 - 42.32% 3
3 CSR 14.188 10.113 - 28.72% 8
4 PDN 2.260 1.847 - 18.27% 7
5 MGX 35.038 31.575 - 9.88% 8
6 IGO 18.720 16.940 - 9.51% 5
7 RIO 668.322 620.975 - 7.08% 8
8 WSA 31.683 29.550 - 6.73% 6
9 AUT 27.011 25.442 - 5.81% 6
10 OZL 67.338 63.438 - 5.79% 8
 

Technical limitations

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article 3 months old

Olympic Dam: Pie In the Sky?

By Greg Peel

A year ago, the world's largest global diversified resource company BHP Billiton ((BHP)) had announced plans to invest US$80bn in capital expenditure in the years ahead on tier one mining/drilling development projects and expansions. Underpinning this ambitious plan was a desire to ensure BHP's place as the world's most dominant commodity supplier into the future, with expectations that the Chinese growth story in particular was far from over.

While it may be the role of management to secure a company's success into the distance, shareholders were taken aback and disappointed by the substantial capex announcement. With Chinese demand having pushed commodity prices higher and turned BHP into a global cash-generating machine, shareholders were looking for a translation of this wealth into a return on their capital. BHP, in line with all miners, has never been a big dividend payer. But surely all that cash could provide for a special capital return or at least a share buyback? BHP's share price was yet to recover its previous peak in early 2008.

It wasn't to be. Instead, BHP elected to spend its cash over time on global mega-projects. These included the expansion of the company's Pilbara iron ore operations and of its copper operations in Chile. BHP has also since diversified into the world of fertilisers with a big investment in a Canadian potash resource, and has augmented its energy sector activities with significant acquisitions of US shale oil/gas assets. And then there is Olympic Dam, in South Australia.

“Without a doubt,” suggest the analysts at BA-Merrill Lynch, “Olympic Dam is an extraordinary asset”. Olympic Dam boasts the largest uranium deposit in the world as well as the fourth largest copper deposit. If that's not enough, it may also prove to be the world's largest gold deposit. Truly a remarkable patch of dirt, of which any global mining company must be very envious. To reinforce this point, BHP has been recently running around securing further tenements adjoining its existing plot, if for no other reason than to ensure no one else gets their hands on them.

Mining analysts have responded with little less than whistles of awe at the scale and potential of BHP's tier one development/expansion “mega-projects”. Such appreciation has led BHP to attract almost rusted on, value-based Buy ratings from stock brokers in the interim. Occasional Hold ratings have mostly been shorter-term reflective of a preference for BHP rival Rio Tinto ((RIO)). This is despite that which has shareholders wondering whether they are prepared to hold for years to see that value realised. By the end of FY11 – a year of substantial earnings growth for the company – consensus forward estimates for FY12-13 had BHP delivering little to no earnings growth. Cashflow was not an issue, it's just that earnings would be all sucked up into capex.

Moving forward into FY12, we find that things have since gone just a bit pear-shaped for the Big Australian, or “The Big Fella” as management prefers us to now nickname the company given its global footprint. Recession and ever present risk in Europe, a stumbling US economy and, perhaps most importantly, a clear slowdown in the Chinese economy have all conspired to send commodity prices lower. At the same time, on the other side of the ledger, costs for the resource sector have continued to rise exponentially. Either factor would have any miner reassessing the scale of its development pipeline. Both together have meant embarrassment for BHP as the company has been forced to write-down, delay and generally back off.

BHP shares are currently trading at a price equivalent to that achieved in April 2009. Shareholders who have held on over that period, comforted in the knowledge of almost consistent Buy ratings from stock brokers, have seen $30ps become $47ps and then $30ps again.

The good news is that BHP has now elected to provide shareholders with a progressive dividend policy – to grow dividends rather than treat them as a small extra on top of assumed capital appreciation. GFC-bitten investors are now seeking yield over growth at at time when growth seems ever more elusive.

The bad news is that the previously assumed value in BHP's mega-pipeline is seemingly waning as each month passes. The company may have to write down some US$2bn of the value of its aluminium assets in an oversupplied market. There is much speculation surrounding just what amount of the company's US$20bn investment in US shale will need to be written down. Not only have natural gas prices wallowed in the US, there have been questions raised as to whether BHP's due diligence on its US$4.75bn asset acquisition from Chesapeake Energy was up to scratch. At the end of this year, the company must decide to just what extent it will expand its Pilbara iron ore operations and infrastructure. 

Then there's Olympic Dam, again. It is assumed at least one of BHP's mega-projects will need to be put on ice for the time being. Will it be Canadian potash? Or will it be the world's largest uranium/gold/copper resource?

Last week mining analysts in London sat down for breakfast with BHP's Chief Executive Non-Ferrous, Andrew Mackenzie, and President Base Metals, Peter Beaven. BHP's mega-pipeline was a hot topic over bacon and eggs.

The company continues to showcase it's potential growth projects, but will strike a balance between short and long term returns. The company also seems committed to retaining ownership of its tier one jewels so is unlikely to ever sell down ownership stakes to raise capex funding. In Citi's view, “This will result in the continued staging and potential push-back of large scale projects”.

On the plus side, BHP remains very keen on copper. The copper market is expected to remain tight as grades decline globally and existing resources are exhausted, making copper far more promising a pursuit than aluminium, for example. Previously it appeared, Citi notes, that BHP's copper division had been left out in the company's massive capex allocation in favour of energy and iron ore. This now appears to be changing, with Escondida on track and guidance unchanged, Antamina all but complete, Pinto Valley expected to restart by year-end and Cannington (silver/lead/zinc) offering significant scope for increased mine life. The Merrill Lynch analysts suggest "brownfield growth is our favourite kind”.

Merrills also notes there are still more studies to complete before BHP commits its copper capex. Citi would like more confirmation the company's “build versus buy” intentions when it comes to weighing up greenfield/brownfield capex spend. The Citi analysts do note Mackenzie's suggestion that acquiring in the current market remains difficult. Merrills believes assets like Cannington and Pinto Valley are “non-core” and could thus be offloaded.

As for potash, Mackenzie suggested that while the company would likely continue to sink two shafts at the US$10bn Jansen project site, construction of some of the surface infrastructure may be delayed. This implies the "staging" of another mega-project.

What then of Olympic Dam? There was a lot of discussion at breakfast. On Merrill's “simple analysis”, the project struggles to generate net present value if some US$25-30bn of capex is assumed. Mackenzie acknowledged that the first phase of the project struggles more than any other BHP project. The value, Mackenzie highlighted, lies in long term optionality.

Which means we can probably kiss goodbye to the world's largest uranium deposit, fourth largest copper deposit and largest gold deposit, for now at least. Merrills sees a decision on the Olympic Dam expansion being pushed out “as far as is feasible”. This could mean 2018-19. That's the decision mind, then the work has to begin.

For those slightly more mature shareholders amongst us, it may be a case of expanded Olympic Dam (actual) production aspirations being left for one's children. In the meantime there's copper, and perhaps iron ore, and possibly shale gas, and maybe potash to dream about.

FNArena's Stock Analysis shows five Buy ratings or equivalent on BHP among the eight brokers in the database, and three Holds. The consensus 12-month share price target is $41.78, only 37% above today's price. The 52-week range on the share price is $30.50 (we're below that today as I check) to $43.78 (April). The all-time high is $48.70 (May 2008). 

Source: eSignal

Technical limitations

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article 3 months old

Uranium Continues To Frustrate

By Andrew Nelson

It’s got to be getting frustrating for uranium investors out there. The World Nuclear Association says there are 435 active nuclear power reactors operating in 30 countries.  That number is expected to increase steadily in the years ahead, especially as there are more than 81 reactors currently under construction or being upgraded around the world, with a 150 new reactors expected to be completed by the end of 2016.

Yet uranium prices languish, just as they have been doing since the Fukushima meltdown over a year ago. In that time Japan said it would slow nuclear use, increase nuclear use and just last month opened up two reactors. And electricity generation from nuclear power worldwide has now reached record levels. But since August 2011, the uranium spot price hasn’t even moved a dollar.

Uranium supply levels are down, but so is demand for the time being and that’s the problem.  A uranium market report from Australian firm Resource Capital Research expects the spot price remain under pressure in the near term, pressured by the impact of reactor shutdowns and closures in Japan and Germany.

Thus, while there is admittedly little in the way of active supply into the spot market at present, Resource Capital still sees the potential for utility surplus dispositions. The report also notes that spot market prices are also being impacted by ongoing Japanese renegotiation of delivery contracts for surplus supply.

This leads Resource Capital to expect a quiet spot market for the next six months, although some significant news of supply disruption in the meantime could generate some upward price pressure via producer on market purchases in order to meet delivery commitments.

In line with these views, the first week of July was a slow one in the spot uranium market.  Both the Americans and Canadians celebrated their Independence Days, meaning a big chunk of the market spent a good part of the week away from their desks.

In the end, market consultants TradeTech reported only two transactions to the total of 200,000 pounds taking place. The consultant notes that buyers are staying out of the market for the most part, either due to a lack of requirement, budget constraints, or on hopes of a dip in prices given currently weak demand.

As a result, TradeTech’s Weekly U3O8 Spot Price Indicator was down US$0.15 to at US$50.60 per pound. Maybe  there will be a bit more buying interest in September as the World Nuclear Association Annual Symposium in London approaches, hopes TradeTech.

If you though the spot market was quiet last week, then the term market was absolutely dead. TradeTech reported zero new demand and not one transactions in either the mid or long-term markets. However, there was talk that one non-US utility will start looking for significant quantities in the coming weeks. The mid-term and long-term prices stood pat at US$54.50 and US$61.00 respectively.

 
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