The factors contributing to the company’s status and financial expectations for this year are discussed in a Raymond James report.
In a Jan. 21 research note, Raymond James analyst Praveen Narra reported that Halliburton Co. (HAL:NYSE) is “well positioned for 2020” after “solid Q4/19 results.” North American cost cuts and international revenue growth have gotten the energy company to its current state.
As for its North American business, Halliburton shrank it to its forecasted 2020 activity levels and concentrated on more stable customers, Narra noted. These changes should significantly improve full-year utilization and lead to fewer cost absorption issues. Also, they should boost 2020 margins beyond those generated through the company’s cost saving program.
“With guidance of 95% hydraulic horsepower dedicated in Q1/20, we expect Halliburton can focus on higher-return work despite overall pricing softness,” Narra commented.
In Raymond James’ model on the Houston, Texas-based energy company, its North American revenues in 2020 drop 14% but EBIT margins rise by 40 basis points year over year (YOY). Boosting that EBIT is an expected, $450 million YOY tailwind from reduced fixed costs and lower depreciation, depletion and amortization.
Regarding international growth, Halliburton achieved double digit revenue growth in that business segment in 2019, and it is expected to continue that trend in 2020, albeit at a slower pace, Narra relayed. Raymond James anticipates a 9% YOY revenue slowdown, but even with that, Halliburton’s 2020 revenue would still will exceed that of the industry as a whole, which is expected to increase 6%.
Narra highlighted that for Halliburton, “the cost cutting and right sizing of its footprint, along with continued activity increases in international markets, should drive improvements in margins for both international and North America.”
Overall, the financial services firm expects Halliburton’s EBIT margins to rise in 2020 about 200 basis points to 8.3% due to the company capitalizing on pricing power in specific markets and starting significant projects.
Narra indicated that due to its cost cutting and capital discipline (the budgeted 2020 capex spend is down 20% YOY), Halliburton generated almost $1 billion of free cash flow in 2019 in a weak environment and should do the same in 2020.
Raymond James expects free cash flow this year will reach $1.3 billion for a 6.3% free cash flow yield at today’s prices. Most of the increase should result from capex reduction, with only about 10% coming from earnings/working capital. “Additionally, we see upside to this figure on working capital as a potential source of cash on lower inventory requirements,” added Narra.
Raymond James has a Buy rating and a $32 per share target price on Halliburton, whose stock is trading today at around $21.63 per share.
Disclosure: 1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Raymond James, Halliburton Company, January 21, 2020
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst’s success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Praveen Narra, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of Halliburton Company.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available here.
Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Later in today’s program we’ll hear from the one and the only Gerald Celente of the Trends Journal. The top trends forecaster shares his thoughts on why protests in many nations throughout the globe are a driver in central banks continual printing of a massive amount of money. Gerald also weighs in on the coronavirus situation, the U.S. strike on Iran earlier this month, and why he believes gold may hit a new all-time high as soon as this year. So don’t miss another jam-packed and incredible interview with Gerald Celente, coming up after this week’s market update.
As the coronavirus continues to spread, global financial markets are showing the symptoms of investor unease.
Chinese and emerging markets stocks have taken a big hit over the past several days, as have commodities. Crude oil prices have dropped 13% over the past two weeks while copper has seen a 12% drop on concerns about the impact of the China virus on global demand.
Gold and silver, meanwhile, are faring much better as some investors seek out the precious metals for safe haven protection. For the week, gold prices are up 1.0% to trade at $1,589 an ounce. Spot silver currently checks in at $18.11 per ounce, down a slight 0.3% since last Friday’s close.
Turning to platinum, it is taking a 4.4% hit to the downside this week to trade at $966. And finally, palladium is cooling off a bit this week, dropping 5.8% to bring its price per ounce to $2,308.
Markets brushed off the Federal Reserve’s policy announcement on Wednesday. The Fed kept rates unchanged as expected. Chairman Jerome Powell reiterated the central bank’s policy of “symmetric” inflation targeting. That translates into allowing inflation rates to rise above the Fed’s 2% target for a sustained period to make up for recent periods where it ran below 2%.
Obviously, the central planners on the Federal Reserve Board remain unsatisfied with the level of price increases consumers face. Food and fuel are still too cheap, they say. Medical care and college tuitions are too affordable for too many people.
And it’s all because the dollar isn’t depreciating fast enough for the Fed’s arbitrary inflation target to be hit.
The U.S. Dollar Index is firming so far this year. And the threat of a global pandemic has policymakers concerned that consumers and businesses will hunker down and further depress price levels in dollar terms.
The mainstream media and political correctness police have other concerns as top priorities. No, it isn’t about the risk of Americans being infected from international travel into the U.S. It’s about the risk of Chinese people being stereotyped and subjected to “racism” and “sinophobia.”
Meanwhile, CNN alerted Americans to the alarming fact that President Donald Trump’s Coronavirus Task Force isn’t “diverse” enough. Badgering people about what they look like is apparently helpful in fighting the spread of a deadly disease. Thank goodness there are journalists willing to do such brave and heroic work!
And thank goodness the Fed stands ready during any potential national emergency to pump limitless amounts of cash into the repo market and banking system.
On Thursday, the Federal Reserve Bank of New York pumped another $83 billion in new liquidity into short-term lending markets. The move saved the banks from having to sort out their own illiquidity issues for another week.
Unfortunately for other industries – automakers in particular – the Fed can’t liquify the markets for palladium and rhodium by injecting fresh supplies of metals.
The markets for these critical metals used in catalytic converters remain beset by physical supply deficits. This in turn is causing unusual spikes in leasing rates and distortions in pricing mechanisms as bid/ask spreads widen.
According to Refnitiv GFMS, the palladium market will operate under a supply deficit of 883,000 ounces this year. Prices may have to rise even higher for the already pricey metal before supply and demand reach an equilibrium.
We would caution that it’s pretty late in the cycle to be a buyer of palladium here. The good news is that it’s still very early in the cycle for other metals, including lagging platinum and dirt-cheap silver.
Consider that in 2016, palladium began the year trading around $500/oz. Prices have since quintupled.
Silver bottomed at the very end of 2015 just below $14/oz. Prices advanced strongly that next year before falling back into a major trading range. Silver has managed to make only modest net progress.
A mere quadrupling from its late 2015 low would take silver over $50 – and that would likely just be the warm-up phase that finally establishes new all-time highs. Then the explosive phase could begin that sees new high after new high, week after week – just like we’ve seen in palladium over the past year.
When silver and gold prices are making new records, perhaps the Fed will finally have the inflation it so desperately wishes for. Pushing inflation rates back down, though, won’t be so easy. Once the genie is out of the bottle, it can’t exactly be put back in.
Well now, without further delay, let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to welcome back the one and the only Gerald Celente, publisher of the renowned Trends Journal. Mr. Celente is a frequent guest here on the Money Metals podcast and perhaps is the most well-known trends forecaster in the world and it’s always great to have him on with us.
Gerald, thanks for the time again today. I guess we can still say happy new year. Welcome back to you.
Gerald Celente: Well thank you and thank you for your kind words.
Mike Gleason: Well, Gerald, here we are at the start of another year and a new decade also. At the start of the last decade in 2010 we were in the aftermath of the Financial Crisis that looked like the reckoning for all the debt, the expansion of government and the irresponsible, crooked behavior of folks on Wall Street wouldn’t be too far away, the Tea Party movements and Occupy Wall Street were indications that people had just about enough. But here we are. The debt bubble is much larger, there have been exactly zero accountability or restraint on Wall Street, government is much bigger and more expensive than other and somehow most Americans have been lulled back to sleep. Stock prices are up. The president is talking about the greatest economy ever. Clearly the lessons of the last financial crisis don’t seem to have stuck. What do you make of that and what are you expecting for the decade ahead given that people seem to have short attention spans and a high tolerance for nonsense? Can the powers that be keep the wheels on this sorry system for another decade?
Gerald Celente: Well I don’t know if they can keep it on for another decade. As far as people not caring, they’re not tuned into the real news. They’re turned into the impeachment process. They don’t have a clue what’s going on around the world. And of course, now the Coronavirus. The Coronavirus, goodbye Rosie, queen of Corona’s, right? Everywhere. People are freaking out about that. As far as keeping the game going and then people learning anything, you don’t teach addicts anything and that’s all Wall Street are, they’re money junkies. They don’t care about anything other than making money and an addict doesn’t think, an addict doesn’t feel. They’re addicted. And what the Federal Reserve and the central banks are, they’re the money junkies. They keep the addicts going. They’re the dealers.
This is all it is, and everybody knows it’s one big Ponzi scheme. You look at the six trillion dollars that the Federal Reserve and the Federal Bank of New York, the Reserve Bank of New York have dumped into the repo markets since September 17th of last year and then they’re buying 60 billion dollars’ worth of bonds. I’m not going to call it Quantitative Easing. “My name is Powell and I’m the Fed Chair and all over we’re buying back bonds, we’re doing the same crap we did before. We’re not going to call it Quantitative Easing and all you little presstitutes out there, all you little boys and girls in the mainstream media that get paid off by your Washington whore masters and your corporate pimps, don’t you question me. I’m the Federal Reserve chairman. I sucked up and bowed down a long way to get where I am.” That’s what we’re talking about.
Mike Gleason: Well switching gears a little bit, you mentioned this in your first answer there but the Coronavirus in China has certainly been a big story over the last week or so. It appeared that the markets were starting to get riled earlier this week on fears that it would have a big impact on the global economy but as we’re talking here midweek equities have rebounded and those fears have dissipated for the most part. Now we’ve had some virus scares in the past, SARS for instance at the beginning of this century. Talk about this, Gerald. Is this much ado about nothing or will this turn into a major problem that really effects things economically? Give us your thoughts here.
Gerald Celente: Well again the Coronavirus is the mainstream media’s headline news. “People are dying, cities in China shut down, tens of millions quarantined, the government’s in crisis, foreigners are evacuating as the death toll rises, flights are being canceled.” You mentioned equity markets across the glove tanked Monday but they bounced back. While it’s difficult to forecast how fast and wide the virus will grow to date, what, about 136 people have died in a nation of 1.4 billion people? I mean come on. And most of the victims were chronically ill before getting the virus. What do you have, about, I think it’s like 1.5 million people die a year in car accidents globally? You look at the flu virus in America, what is it, about 60,000 people die of it each year.
They’re comparing it now to the SARS outbreak in 2002. Severe Acute Respiratory Syndrome. It should be noted back then 800 people died of a world population of 6.281 billion. So, the numbers don’t add up. The numbers are tiny. And again, could this get worse? Could it become the flu of the early 1900s? Maybe, I don’t know, but right now it’s not doing anything in real numbers. So, it seems to be only a temporary hit. Again, it could get worse. Look, when people complain about climate change I say, “Grow up. You’re going to be dead before the climate changes. All the poison that they’re putting in our food and our water and the air and viruses…” What do they have, Swine Flu virus in China? About 60-70% of a pig population wiped out. What’s causing Swine Flu? Couldn’t be the way they’re raising these things, these big factories with all the chemicals and crap and antibiotics they pump into them.
Then I’m thinking, the Chinese, they eat a lot of pork, don’t they? Oh, this is transmitted from animals to people. Could anything happen like that? I mean as I said, they’re poisoning us a million different ways so who knows how far it’s going to go but right now as I see it, it’s overblown.
Mike Gleason: Certainly, tensions with Iran we’re looking like a big story earlier this month, but things have quieted down a bit as it appears both sides stood down for the most part. Let’s get your thoughts on the potential war drums there and the likelihood of continued strife in the Middle East and where you see things headed on that front, Gerald.
Gerald Celente: Well it’s going to continue just, sort of, President Trump’s peace plan, it allows the Israelis to keep stealing the Palestinian land. They call it “settlements.” It’s against international law so that’s going to inflame that, as well. And you’re also looking and again, we’ve been following this very closely with Iran, it’s the Israeli/United States/Saudi triangle aimed at Iran. They don’t want Iran to have any presence in the Middle East. Only America should be there. How many thousands of miles away are we? And they’re neighbors over there. So, when you’re looking at Iran just listen to what we heard this guy, Bryan Hook, who’s the US special representative to Iraq. He said, talking about the fellow that is replacing Solemani who was assassinated by the United States, the Iranian general. His name is Ghaani. If says, “Ghaani follows the same path of killing Americans then he will meet the same fate. That isn’t a new threat. President Trump has always said that he will always respond decisively to protect American interests. I think the Iranian regime understands how that they cannot attack America and get away with it,” said Hook.
Iran attacking America, huh? Where are they attacking America? Oh, in Syria? Where America’s illegally there? In a sovereign nation? Oh, wasn’t Iran invited there by their president? “Yeah they were invited there by their president but I don’t like that guy so we could be there,” says America. Oh, America in Iraq? You mean the Shia Iraqi’s are attacking the Americans who they’ve been trying to throw out of there since they illegally invaded in 2003 on a war based on lies? Oh, oh, those Americans? Oh and the American interest that Hook is talking about, what American interests can they be? It couldn’t be Raytheon or ExxonMobil. Couldn’t be Halliburton or United Technologies or Lockheed Martin. They’re all war profiteers. They keep building this thing up and building hate.
Americans have learned to hate the Iranian’s. Is it any different than Hitler teaching the people how to hate the Jews? But I want to keep going with this because they said that Solemani was an imminent threat. Those are quotes. We were writing about this in detail. They have not provided one shred of evidence. Then we found out that this thing was planned several months ago. Why would anybody believe one thing from Saddam Hussein having weapons of mass destruction to when I was a young guy the Vietnam War, the Gulf of Tonkin incident never happened, so all these other lies that they’re making up.
So, in asking about tensions in the Middle East, this could be the beginning of World War 3. They’re celebrating the Holocaust, it’s 75 years ago, that’s not ancient history. Nations destroyed, Germany, Italy, bombs away over Britain, France. What makes you think it’s not going to happen again if we keep going to war? People better wake up to this. Hey, what about the Superbowl? I wonder who’s going to win the game, you know?
Mike Gleason: Well when we spoke last in November I got your thoughts on the presidential election coming up this year. Looks like the inept Democrats are going to be having trouble beating Trump. We talked about how lousy their candidates seemed to be and what a waste of time this impeachment effort is. To us it doesn’t look like much has changed since then but we are entering the primary season now and I suppose we should hear what you have to say about the race as it stands now and what, if any, wildcards you might see with the potential to shake things up. Obviously this story’s going to be using up a lot of oxygen in the months ahead.
Gerald Celente: Yeah well again the impeachment thing is going nowhere because to be convicted, two-thirds of the Senate has to convict him, and Republican’s already have a majority in the Senate so they’re not going to convict him. So, it’s a waste of time. The wildcard is the Trump card. There’s no wilder card. People need to understand this guy will do anything to win. He’s already mentioned before him talking about how great the economy is doing at Davos and this is the best America’s ever done. What is it… a 2.3 average (GDP) growth since he’s been in? Around there. I mean, that’s no growth. Nothing. So, he’ll do anything to win and one of the things is we’re going to see interest rates go lower between now and November. We may even have them to zero to negative. So, he’s going to do what he can to pump up the economy and as we said in our top trends for 2020 it’s going to be Trump by default. Default of the Democrats because they don’t have anybody good to run against him.
Bernie Sanders isn’t a guy that’s going to win swing states. He’s the front runner right now. And none of the others will, either. It’s all the Electoral College and the swing states is going to go for Trump.
Mike Gleason: I can’t let you go without getting your thoughts on the metals markets. Gold prices have perked up early in the year, although silver is still grinding sideways. But we think it will be tough to get a major move higher unless there is some kind of break an investor complacency. After all, I mean, why buy gold when stocks are ratcheting up higher nearly every day? It is possible, of course, to have both stocks and gold moving higher together. In fact, that’s what happened last year but we don’t sense that investors are broadly worried about rising prices and making inflation trades. Let’s get your comments on gold and silver markets and tell our listeners if you think 2020 will be bullish or bearish for the metals, if you would?
Gerald Celente: I believe it is going to be very bullish. I think we have a potential of gold hitting $2,000 this year. All the central banks are lowering interest rates. They’re going to keep doing it. And the cheaper the money gets; the more valuable gold becomes. Then of all the global tensions going on, we just mentioned a little bit of what was going on in Iran. How about what’s going on in Lebanon and people taking to the streets continually. Look at Iraq, the people protesting. Over 500 have been killed by the security forces. People have no future. It’s going on all around the world. Whether it’s from Chile to Bolivia to Columbia to Peru, Venezuela, Algeria, South Africa, Zimbabwe, Mali. Protests, protests, protests and governments doing everything they can to keep the economies going by lowering interest rates, pumping in more cheap money.
As I mentioned what the Federal Reserve has already done and the Federal Reserve Bank of New York with the trillions that they’re pumping in. So, it’s going to only artificially prop up the markets. A wildcard event like a war in the Middle East and oil prices spiking, that will bring down the global economy and equity markets. So, I believe that gold is going to continue to be a very bullish year for it. It’s the ultimate safe haven. Nothing comes close to it and silver follows.
Mike Gleason: Well great stuff once again, Gerald. We always appreciate the time. Thanks for your candor and for sharing your wonderful insights once again. As we always do before we let you go, let’s have listeners hear about the Trends Journal and how they can follow your organization more closely and keep up with the latest trends, which I see you’ve been at for 40 years now, so congratulations.
Gerald Celente: Well thank you. Yeah they can go to TrendsJournal.com. The Trends Journal is the only magazine in the world that tells you what’s going on, what’s next and what it all means. The future is now and if you’re going to stay tuned to the mainstream media, you’re not going to see much of anything that’s going to be beneficial for you. Again, we went from a quarterly to a monthly. Now we’re a weekly because events are changing so rapidly and the trends that are developing are so powerful.
Mike Gleason: Yeah it’s tremendous information. Highly recommend people get on board with The Trends Journal and follow Gerald and his team and the fantastic content they’re putting out on a regular basis. As he says, history before it happens, and that’s a great place to go to read that and really stay up on things.
Well thanks again, Gerald. We always enjoy the conversation. I can’t wait to have you on again in the not so distant future as we discuss how things are going to shape up for investors this year. Take care and have a great weekend.
Gerald Celente: All right, thank you.
Mike Gleason: Well that will do for this week. Thanks again to Gerald Celente, publisher of the renowned Trends Journal. For more information, the website again is TrendsJournal.com, be sure to check that out.
And check back here next Friday for our next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend everybody.
The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.
By CentralBankNews.info Ghana’s central bank left its monetary policy rate steady at 16.0 percent, citing balanced risks to inflation and economic growth. The Bank of Ghana (BOG) has maintained its rate since cutting it by 100 basis points in January 2019 as it gradually continued an easing cycle that began in November 2016. Since November 2019 the rate has been lowered by 10 percentage points. Growth in Ghana’s economy remains robust and broad-based although at a moderate pace relative to 2018, with consumer confidence rebounding and business “fairly optimistic,”BOG said. The latest composite index of economic acuity was up 3.1 percent year-on-year in November 2019 but down from 4,8 percent in the November 2018, with December confidence surveys showing a significant improvement in consumer confidence while business confidence softened due to exchange rate depreciation in November. Gross domestic product in the first three quarters of 2019 averaged 6.0 percent, almost unchanged from 6.1 percent in the same 2018 period, and overall growth for 2019 is projected to be close to 7.0 percent. The external sector remains strong, BOG said, noting the trade surplus had risen for the third consecutive year, helping narrow the current account deficit further to 2.5 percent of GDP in 2019 from 3.1 percent in 2018, and helping foreign reserves rise an additional US$1.3 billion to $8.4 billion at the end of December from $7.0 billion in December 2018. This should help ensure stability in the foreign exchange market where the cedi fell 12.9 percent against the U.S. dollar in 2019 compared with a 8.4 percent fall in 2018. But as of Jan. 29, BOG said the cedi had recovered, appreciating 0.3 percent compared with depreciation of 2.5 percent in the same 2019 period. Ghana’s inflation rate has been in single digits since June 2018 and recently remained steady around the central path of 8.0 percent, with various measures of underlying inflation well-contained. In December Ghana’s headline inflation rate eased to 7.9 percent from 8.2 percent in November.
The Bank of Ghana released the following press release”
“Good morning, Ladies and Gentlemen of the media, and welcome to the first MPC press briefing for 2020. The MPC met during the week and deliberated on the recent global and domestic economic conditions, reviewed the latest macroeconomic projections, and subsequently took a decision on the positioning of the Monetary Policy Rate. I present to you the highlights of the meeting.
There are signs of recovery in global growth, following an assessment by the IMF of a synchronised slowdown in global growth in the last quarter of 2019. Global growth is now projected to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020, and 3.4 percent in 2021. The key risks to the global growth outlook are geopolitical tensions between the US and Iran and worsening of relations between the US and its trading partners with the rising threat of protectionism and vulnerabilities in emerging markets. The outbreak of the Coronavirus poses a new risk to the global economy and its impact is yet to be assessed. The Brexit finally takes effect today and is not expected to adversely affect the global economic outlook.
Headline inflation in advanced and emerging market economies remained contained throughout 2019, reflecting moderated wage growth. In response to the low inflation environment, central banks in major advanced economies pursued accommodative monetary policy to support growth. For instance, the major central banks—US Federal Reserve and the European Central Bank, either cut or kept their policy rates unchanged in the second half of 2019. These policy actions contributed significantly to favourable global financing conditions with positive effects on capital flows to emerging and developing market economies as investors searched for higher yields.
On the domestic front, headline inflation has remained in single digits since June 2018 and more recently remained steady around the central path of 8.0 percent. The two readings since the last MPC meeting showed that inflation increased to 8.2 percent in November from 7.7 percent in October 2019 due to upward adjustment in some administrative prices. However, it declined to 7.9 percent in December 2019 on the back of lower food prices amidst stable non-food prices. Alongside these trends, the various measures of underlying inflation remained well-contained and the Bank’s core inflation (defined to exclude energy and utility) has declined since June 2019, supported by well-anchored inflation expectations.
The latest data from the Ghana Statistical Service point to firmer growth during 2019, although at a relatively slower pace than was recorded in 2018. GDP growth outturn for the first three quarters of 2019 averaged 6.0 percent, almost unchanged from the 6.1 percent recorded in the same period of 2018. Similarly, non-oil GDP growth averaged 5.0 percent against 5.9 percent over the same comparative periods. Overall, GDP growth for 2019 is projected to be close to the target of 7.0 percent.
Similar to trends in GDP growth, the Bank of Ghana’s updated Composite Index of Economic Activity (CIEA) recorded high growth, although at a slower pace than in 2018. The CIEA recorded 3.1 percent year-on-year growth in November 2019, compared with 4.8 percent in the same period of 2018. This was mainly supported by port activity, domestic VAT, and Deposit Money Banks’ (DMBs) credit to the private sector. Results from the Bank’s latest confidence surveys conducted in December 2019 showed significant improvement in consumer confidence reflecting optimism about current and future economic conditions. Business confidence, on the other hand, softened marginally on account of the exchange rate depreciation in November 2019. However, businesses expressed positive sentiments about industry prospects and declining interest rates.
Growth in the key monetary aggregates firmed up in 2019, driven largely by increased accumulation of net foreign assets by the Bank of Ghana. Broad money supply (M2+) recorded an annual growth of 21.6 percent in December 2019 compared with 15.4 percent a year ago. The increase was mainly reflected in increased deposits, signifying deposit flight to quality, as the clean-up process boosted a return to confidence in the banking sector.
DMBs’ credit to the private and public sectors rebounded strongly in 2019. Private sector credit grew by 18.3 percent year-on-year to GH¢44.5 billion in December 2019, compared with 10.6 percent in December 2018. In real terms, private sector credit growth was 9.7 percent. Distribution of the credit was broad- based and almost all the key economic sectors recorded higher credit growth in 2019 relative to what was observed in 2018. The major sector beneficiaries were Services with 24.1 percent, Commerce and Finance with 20.9 percent, and Manufacturing with 10.9 percent.
Supporting the rebound in credit growth, the Bank’s latest credit conditions survey conducted in December 2019 pointed to a net easing in overall credit stance to enterprises. The survey findings also showed that credit demand by enterprises would increase in the first quarter of this year. Underscoring these favourable survey results, the banking sector data showed a significant jump in new advances by 27.3 percent year-on-year to GH¢29.7 billion in 2019.
The international commodities market remained buoyant, despite intermittent volatilities in the course of the year. Crude oil prices increased by 13.0 percent year-on-year, driven by OPEC production cuts and other geopolitical factors. Crude oil closed the year at an average of US$65.2 per barrel. Gold prices averaged US$1,481.3 per fine ounce, recording a year-on-year growth of 18.4 percent. The surge in gold prices was attributed mainly to the global economic slowdown and the low interest rate environment in major advanced countries. Cocoa prices averaged US$2,215.4 per tonne in 2019, an increase of 11.6 percent, due to the dry weather conditions which posed some threat to the quality of the bean.
These price movements in the country’s key export commodities, together with increased export volumes, impacted positively on the external sector. In 2019, total exports increased by 4.6 percent year-on-year to US$15.6 billion, driven mainly by 14.6 percent growth in gold exports and 8.6 percent growth in cocoa beans and products. Imports, on the other hand, grew at a slower pace of 1.5 percent to US$13.3 billion on account of a 4.2 percent growth in non-oil imports, while oil and gas imports contracted by 9.2 percent. These developments resulted in a trade surplus of US$2.3 billion (3.4 percent of GDP) in 2019, compared with US$1.8 billion (2.8 percent of GDP) in the same period of 2018.
The trade surplus, together with improvements in net current transfers, especially remittances, resulted in further narrowing of the current account deficit to US$1.7 billion (2.5 percent of GDP) in 2019, compared to a deficit of US$2.0 billion (3.1 percent of GDP) a year ago. The current account deficit was financed by significant inflows into the financial account, driven in large part by foreign direct investments and portfolio investments. Consequently, the overall balance of payments recorded a surplus of US$1.3 billion (2.0 percent of GDP) over the review period, compared with a deficit of US$671.5 million in 2018.
Gross International Reserves at the end of December 2019 was US$8.4 billion, providing cover for 4.0 months of imports of goods and services. The reserve level compares with a position of US$7.0 billion, equivalent to 3.6 months of import cover recorded at the end of December 2018.
The Ghana cedi depreciated by 12.9 percent against the US dollar in 2019, compared with 8.4 percent depreciation in 2018. Against the British pound and Euro, the Ghana cedi cumulatively depreciated by 15.7 and 11.2 percent respectively, compared with 3.3 and 3.9 percent over the same period in 2018. By January 29, 2020, the Ghana cedi had recovered, appreciating by 0.3 percent compared with a depreciation of 2.5 percent in the same period of 2019.
Provisional budget estimates from January to December 2019 indicated that total revenue and grants amounted to GH¢52.97 billion (15.3 percent of GDP) compared with the projected target of GH¢54.56 billion (15.8 percent of GDP). Total expenditures, including arrears clearance was GH¢67.67 billion (19.6 percent of GDP), below the target of GH¢70.19 billion (20.3 percent of GDP). These developments resulted in an overall fiscal deficit (on a cash basis) of 4.8 percent of GDP, slightly above the target of 4.7 percent of GDP but below the 5.0 percent fiscal rule.
Inlinewiththesedevelopments,theprovisionalestimatesindicatethatthestock of public debt rose to 62.1 percent of GDP (GH¢214.9 billion), at the end of November 2019 compared with 57.9 percent of GDP (GH¢172.9 billion) at the end of November 2018. Of the total debt stock, domestic debt was GH¢102.9 billion, while external debt was GH¢111.9 billion with a share of 52.1 percent in the total public debt.
Interest rates on the money market increased slightly across the various maturities of the yield curve. The 91-day Treasury bill rate inched up to 14.7 percent in December 2019 compared with 14.6 percent a year ago. Interest rates on the 182-day instrument also moved up to 15.2 percent, from 15.0 percent over the same period a year ago. In contrast, rates on the secondary bond market broadly declined. Yields on the 7 and 15-year bonds marginally declined to 21.0 and 19.9 percent in December 2019, from respective 21.0 and 21.4 percent in December 2018. The yield on the 10-year bond, however edged up slightly to 21.3 percent from 21.2 percent over the same review period.
The weighted average interbank lending rate declined to 15.2 percent in December 2019, from 16.1 percent in the same period a year earlier. In a similar trend, average lending rates compiled from the banking sector marginally declined to 23.6 percent in December 2019, from 23.9 percent in December 2018.
A year after the completion of the clean-up and recapitalization exercise, the performance of the banking sector has improved markedly, signifying positive dividends from the reform programme. Enforcement of the new Corporate Governance Directives issued by the Bank as part of the recent reforms led to several board chairs of banks and CEOs ending their tenure, while Board members who had served for prolonged periods were all replaced.
The banking industry has built up a much stronger balance sheet and recorded strong asset growth, improved quality of loans and profitability during the year. All the financial soundness indicators, measured in terms of earnings, liquidity, and capital adequacy remained strong.
Total assets of the banking sector increased to GH¢129.06 billion at end- December 2019, representing a 22.8 percent year-on-year growth. The increased total assets was on account of significant growth of 22.2 percent year- on-year in deposits to GH¢83.46 billion underscoring renewed confidence in thebanking sector. The industry’s Capital Adequacy Ratio, computed in accordance with the Capital Requirement Directive under the Basel II/III capital framework, stood at 17.5 percent at the end of December 2019, and above the 13 percent minimum regulatory benchmark. Asset quality also improved significantly and the NPL ratio declined sharply to 13.9 percent in December 2019 from 18.2 percent in December 2018, reflecting increased loan recoveries, write-offs, and higher credit growth.
Paymentsystemsdatapointtocontinuedexpansionintheuseofmobilemoney, further supporting the inclusive financial sector agenda. As at December 2019, total active mobile money accounts stood at 14.5 million, up from 13.1 million a year earlier.
Summary and Outlook23. In sum, the Committee noted that the synchronised slowdown in the global
economy during 2019 is beginning to give way to a recovery, mainly in the emerging market and developing economies and at a modest and uneven pace. The coordinated monetary policy responses of the major central banks to keep interest rates on hold and adopt a dovish monetary policy stance should benefit emerging market economies with solid macroeconomic fundamentals.
On the domestic economy, the latest data from the Ghana Statistical Service and the Bank’s Composite Index of Economic Activity both show that economic growth continues to remain robust and broad-based, although at a moderated pace relative to 2018. Consumer confidence has rebounded and businesses are fairly optimistic about industry prospects. Strong growth in monetary aggregates reflects significant pickup in aggregate demand, buoyed by a rebound in private sector credit, following the clean-up of the banking sector. Over the medium- term, growth will be supported by the services sector, especially as the banking sector continues to grow stronger and resilient, as well as the continued implementation of growth-oriented programmes in the industry and agricultural sectors of the economy.
The external sector performance continued to remain strong, with an improved trade surplus for the third consecutive year. This contributed to further narrowing of the current account deficit and supported additional reserve build-up of US$1.3 billion. This should provide strong buffers to withstand shocks and ensure stability in the foreign exchange market.
Fiscal policy has been a source of considerable stimulus. The 2019 budget execution was broadly in line with expectations with the budget deficit outturn almost on target and within the fiscal rule of 5.0 percent of GDP. While acknowledging that there are electoral cycle fiscal risks, strong commitment by the fiscal authorities to stay on the consolidation path should help sustain the stability and growth achieved over the past three years.
Overall, the economy presents fairly resilient and robust performance with regards to output growth and a strong trade and payments position. The economy is positioned firmly on the path of stability with inflation forecasted to stay within the medium-term target band of 8±2 percent, barring any unanticipated shocks.
28. Under these circumstances, the Committee viewed risks to the inflation and growth outlook as broadly balanced, and therefore decided to keep the Monetary Policy Rate unchanged at 16.0 percent, while standing ready to take decisive policy actions when necessary to ensure that inflation remains within the target band.
The compelling aspects of this investment opportunity are outlined in a Pareto Securities report.
In a Jan. 20 research note, analyst Tom Eric Kristiansen reported that Pareto Securities initiated coverage on PetroNor E&P Ltd. (PNOR:OSE) with a Buy rating and an NOK 1.3 target price. The current share price is NOK 0.98.
Kristiansen, noting the company has “high growth ambitions ahead,” presented the highlights of the PetroNor story. For one, the energy company “delivered solid production growth” and a 25%-plus return on capital since securing four oil fields in offshore Congo’s Pointe Noire Grand Fond (PNGF) Sud block in 2017. Three years later, these fields are expected to produce 2,400 barrels of oil equivalent per day (2,400 boe/d) net in 2020, a greater than 50% increase, at a lower operating expense of US$12 per boe versus $26. This is due in large part to workovers of existing wells being done at a low cost. Thus, late last year PetroNor increased Proven and Probable reserves there by 28% to 11,200,000 boe.
“We estimate that PetroNor E&P will generate an average annual fixed capital outlay of US$18 million in 2020 to the end of 2022 at Brent US$65 per barrel oil that likely will be reinvested info further growth,” Kristiansen commented.
Also late in 2019, PetroNor engaged in several transactions to pursue overlooked potential on the Aje block in offshore Nigeria and thereby potentially grow the company further. When the Aje transaction closes, it will increase PetroNor’s production base to about 2,600 boe/d from 2,300 and offer further growth potential.
Further, PetroNor has exposure to four disputed exploration blocks in The Gambia and Senegal, which have “a very large, derisked upside potential of 4.9 billion boe gross,” Kristiansen described. The company is working to resolve the issues, for which final rulings are anticipated later in 2020.
Looking forward, PetroNor aims to increase production to 30,000 boe/d over the next three years through mergers and acquisitions. “We expect further transactions to be announced in 2020,” noted Kristiansen. The oil company will continue to invest in workovers, infill drilling and exploration wells, likely funded by cash flow from production, possibly increased leverage and/or new equity.
Kristiansen concluded that “the company today trades fairly in line with our valuation of its producing assets indicating upside potential if PetroNor E&P is able continue to grow production at the PNGF Sud block, successfully revitalize the Aje partnership and/or secure a positive outcome of the ongoing arbitration processes related to the legacy assets from Africa Petroleum (final rulings expected in 2020).”
Disclosure: 1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Pareto Securities AS, PetroNor E&P, January 20, 2020
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The green lights and their implications are discussed in an H.C. Wainwright & Co. report.
In a Jan. 22 research note, H.C. Wainwright & Co. analyst Ram Selvaraju reported that the European Commission approved the regimen consisting of Genmab A/S’ (GMAB:NASDAQ) Darzalex (daratumumab) along with Velcade (bortezomib), thalidomide and dexamethasone for newly diagnosed, transplant-eligible multiple myeloma patients.
Approval, which was expected and based on the Phase 3 CASSIOPEIA clinical trial results, was for the marketing of Darzalex in the European Union as a frontline treatment for this indication. “We believe this further supports our recently increased European Union sales multiple (0.8 from 0.75),” Selvaraju commented. This regimen already previously received approval in the U.S.
The analyst also reported that another anticipated approval that affects Genmab occurred ahead of schedule. That approval consisted of priority review, orphan drug, fast track and breakthrough therapy designations by the U.S. Food and Drug Administration (FDA) for Horizon Pharma’s Tepezza (teprotumumab) for adult thyroid eye disease. Because Genmab created the molecule decades ago, it is entitled to high single-digit percent royalties on net Tepezza sales.
Taking into account new pricing and market penetration assumptions by Horizon, H.C. Wainwright now projects peak Tepezza global sales of about $1.6 billion versus its previous forecast of $800 million, noted Selvaraju.
He concluded that “the higher sales potential for teprotumumab and faster-than-anticipated FDA approval only underscore the quality of Genmab’s pipeline and may portend further upside from other programs, which we believe are currently being overlooked by the Street.”
H.C. has a Buy rating and a $25 per share price target on Genmab, whose stock is trading today at around $23.04 per share.
Disclosure: 1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. 6) This article does not constitute medical advice. Officers, employees and contributors to Streetwise Reports are not licensed medical professionals. Readers should always contact their healthcare professionals for medical advice.
Disclosures from H.C. Wainwright & Co., Genmab A/S, Company Update, January 22, 2020
Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months.
I, Raghuram Selvaraju, Ph.D., certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.
None of the research analysts or the research analyst’s household has a financial interest in the securities of Genmab A/S (including, without limitation, any option, right, warrant, future, long or short position).
As of December 31, 2019 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Genmab A/S.
Neither the research analyst nor the Firm has any material conflict of interest in of which the research analyst knows or has reason to know at the time of publication of this research report.
The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.
The Firm or its affiliates did receive compensation from Genmab A/S for investment banking services within twelve months before, and will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.
H.C. Wainwright & Co., LLC managed or co-managed a public offering of securities for Genmab A/S during the past 12 months.
The Firm does not make a market in Genmab A/S as of the date of this research report.
H.C. Wainwright & Co., LLC and its affiliates, officers, directors, and employees, excluding its analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research report.
By TheTechnicalTraders – Our research team has highlighted a number of technical and other factors that point to a very real potential of a major market top setting up across the global markets. We’ve highlighted a number of research articles over the past 30 to 45 days that clearly illustrate our interpretation of the US and global markets.
Our research team believes the Coronavirus outbreak in Wuhan china will cripple economic expansion and consumer economic activity in China and much of SE Asia over the next few weeks and months. If the virus spreads into India, it could quickly target large portions of India’s economic capabilities. We are very early into this potential pandemic event. The growth rates reported by China suggest only a 2~3% death rate, yet an almost exponential growth rate for the number of invested. It started off below 100 about 10+ days ago and is now almost ready to break 10k.
Skilled traders must understand that the world is far more inter-connected economically and via transportation than it was even 50 years ago. More people travel to various parts of the world more often than ever before. More goods and services travel back and forth across oceans and continents than ever before. This inter-connected world is actually quite small when you consider a student or vacationer can travel more than halfway around the planet in less than 35 hours, access two or three major transportation hubs (airports) and have direct contact to dozens of people and indirect contract to thousands of people within that span of time.
Our concern is, quite literally, that the growth of the number of infected people related to this Coronavirus is only just starting to explode.
One analyst we were watching on TV suggested waiting for a -5% price correction in high-value US equities before attempting to buy back into this weakness. Knowing that any type of global pandemic even could continue to expand for many months, years of decades, we believe a large number of these analysts are failing to understand the total scope of this potential event.
Our research team believes the next 6 to 12 months will become very telling regarding the real economic contraction resulting from the Coronavirus spread. We believe the initial measures governments and world organizations are taking will shrink economic opportunity by at least 10 to 20% for certain nations. If the virus explodes into Africa, or the Middle East, or North America, then we have another set of problems to deal with. At that point, the economic ramifications could result in a 30 to 50% contraction in certain segments of the US and Global economy.
Let us try to explain our thinking…
No, people will not stop buying toilet paper, toothpaste, food, and other essential supplies, but they will likely slow their purchases at Starbucks, Movie Theaters, Social Events, Traveling to unknown areas and shopping in large exposed areas (big box stores). Anything that is perceived as a risk will be viewed as potentially dangerous and unwanted.
Consumers and Businesses are like flocks of birds or schools of fish, they all seem to turn to follow the others and move as a single group or “beast”. If consumers start to pull back as this issue extends, we expect the “beast” will follow this trend until the risk is minimized.
Even though the US economic numbers from Q4 are still landing with very strong numbers – remember this data does not include any real data from the current quarter. Everything looks really good if you ignore the threat of the Coronavirus going forward (which is rather foolish). Q1 and Q2 2020 could become a completely different set of numbers.
We believe the waterfall even that we highlighted earlier this week is still a very valid interpretation of the global market future reaction throughout most of Q1 and Q2 of this year. We don’t see any real alternative other than price contraction as long as the Coronavirus continues to wreak havoc across the planet. If the virus is suddenly contained and diminishing, or cured, then we believe the global perception will change back to positive very quickly.
We believe the first waterfall event is already taking place. We believe the second waterfall event will produce a downside price move targeting recent support near $307 on the SPY. We believe any further breakdown of the price below this support level will prompt a downside price move targeting the $260 level. These rotations will come in waves or waterfall events and could target various sectors of the US and global markets.
Pay attention to what the Transportation Index is doing as this outbreak continues. Slowing consumer activity means essential items will still be in high demand, but big-ticket items, cars, luxury, and vacations may see a dramatic slowing in sales and activity. Even homes and apartments may slow in sales. People tend to become very protective and secure in these economic modes.
The Transportation Index may initially fall to levels near 10,200 before finding any real support. Then a further downside move may target longer-term support near 8,500. Below that level.. well, let’s just say that below that level and we could be well into a very serious Bearish contraction phase of the global markets.
Take this time to reposition your assets and protect your value. You can always redeploy your capital when you feel the time is right to jump back into the markets. We believe the next 60 to 90 days will become very informative relating to the spread and capabilities of this virus and our ability to fight it. Don’t let this volatility be something like 2009 when you look back and say “I should have known better”.
Join my ETF Trade Alert Newsletter – Wealth Building Newsletter if you like what you read here and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own.
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed. Visit our web site to learn how to take advantage of our members-only research and trading signals.
By CentralBankNews.info Azerbaijan’s central bank cut its benchmark interest rate for the 13th time, saying inflation had slowed since December and its latest forecast shows it will remain within the target range of 4.0 percent, plus/minus 2 percentage points in 2020. The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by another 25 basis points to 7.25 percent and has now lowered it by 7.75 percentage points since February 2018. In December Azerbaijan’s inflation rate of 0.5 percent was lower than expected, with the annual rate falling to 2.4 percent from 2.6 percent in November, according to CBA. Food price inflation, however, was 4.2 percent but CBA said this was due to higher prices on the global markets, especially for meat products. Economic activity in Azerbaijan, which is recovering from a banking crises and a prolonged economic downturn, remains positive, with real economic growth in 2019 of 2.2 percent and the non-oil sector expanding 3.5 percent, CBA said. The country’s strategic foreign currency reserves rose US$986 million, or 1.9 percent, in January following at 14 percent rise in 2019 to US$52 billion. Among the risks to inflation, CBA said the coronavirus along with the slowdown in China is increasing the risk of volatility in global commodity markets, which has the potential to impact the macroeconomic situation.
Fund manager Adrian Day writes about junior exploration companies in his portfolio that he is recommending for purchase.
Evrim Resources Corp. (EVM:TSX.V, Toronto, 0.315) is coming closer to generating long-term revenue. The Ermitano project it discovered and sold to First Majestic keeping a royalty is on track for a Q1 2021 production start-up. The property is adjacent to First Majestic’s Santa Elena mine, which is running low on ore. FM has been aggressive in exploring Ermitano, and now ramp construction has commenced. For the initial couple of years, some 40% of the Santa Elena mill feed will come from the higher-grade Ermitano, moving up over time. The current resource is 57.8 million ounces of silver, with a PEA expected this quarter. Analysts of First Majestic are looking at up to nine-year mine life.
Undervalued on hard assets alone
Evrim has cash of C$10 million (US$7.7 million), while the Ermitano royalty has an NPV of around US$16 million (on reasonably conservative assumptions). With a market cap of C$26 million, it is clearly valued close to the value of these two hard assets alone, with the rest of the companythe joint ventures and alliances, and other propertiesessentially free. In calculating the value of the royalty, we assumed a static gold price. Given the royalty revenue is off the top, any increase in the gold price will have a meaningful impact on the value of that asset. Importantly, a royalty such as this one could be turned to cash immediately, should the company wish.
The other assets are worth far more than the value the market is giving them. There are too many to delve into here, but two warrant a brief comment. The Ball Creek copper porphyry project in British Columbia is delivering promising initial results; Evrim is fully carried for 20%, a very strong deal. Separately, the western U.S. project data from Yamana has all been digitized and the geos are now looking for projects in the extensive database. Other projects that Evrim holds 100% are ripe for partners.
Market on wait-and-see, which is our opportunity
No doubt, the extreme disappointment just over a year ago from drill results on its highly-anticipated Cuale project has made investors skeptical of jumping back on board. We suspect that the shares acquired at higher prices purely in anticipation of drill results are all long gone, so the stock should respond well to positive news. In the meantime, Ermitano draws ever closer to generating revenue. With solid managementtechnically, financially, and market-savvyEvrim is a very strong buy at these levels.
Indeed, we are now officially recommending purchase of a second tranche of Evrim Resources. We will use a limit of C$0.32 for this second buy.
Midland, with strong balance sheet, looks forward to activity
Midland Exploration Inc. (MD:TSX.V, Toronto, 0.87 x 0.90) follows the prospect-generator model in Quebec. Given its strong balance sheetC$14 million in cashit is able to do more of its own work, generating new projects, identifying targets on properties before joint venturing, and drilling its own high-potential projects.
One of these high-potential projects is Mythril, a polymetallic target in northern Quebec. Midland is now undertaking geophysical surveys over boulder fields and other showings, as well as constructing a 3D model, to gain a better understanding of the property as well as identify targets for the next round of drilling. Recent exploration found several new boulder fields, but without the stunning grades achieved in initial grab samples.
It is a large property, consistently returning mineralization, but the company needs a better understanding of geology (including the age of the rocks), as well as time; this type of project can require extensive drilling.
Lots of activity at different projects
Midland has been busy on other fronts, acquiring by map designation ground near Azimut’s high-grade drill results earlier this month that sent that stock soaring. Similarly, it previously acquired three properties in the Detour Lake Belt, near Wallbridge’s discovery.
In addition, Agnico will do more drilling on its joint-venture with Midland in the Cadillac trend. Having fulfilled its work commitment early, Agnico had been slow with drilling in recent seasons, but the results were strong, so it is not a surprise they are back.
In all, some $6.5 million in exploration expenditures for this year have been budgeted, about $4.5 million from Midland, but that is likely to change as the year progresses.
Buy on weakness will be rewarded
Given that initial Mythril results did not live up to over-hyped expectations, the stock sold off, and now, I believe, we need another definitive positive development to push the stock up again. This could be an exciting new joint-venture or dazzling drill results, but it will have to be real rather than anticipated. Given Midland’s history of delivering, we are confident this will occur at some point in the future. In the meantime, Midland should be accumulated.
Stalled permit masks value at Almaden
Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE, NY, 0.54) has been busy with lobbying efforts, much behind the scenes after the Mexico environmental agency, SEMARNAT, suspended consideration of the final permit required for Almaden’s Ixtaca project at the end of October. This is not the only mineral project held up at the agency; indeed, it is estimated that around 80 permits are bogged down, suggesting a political rationale. There is no specific issue at Ixtaca and the local people are on side, notwithstanding a noisy, U.S.-backed NGO.
With a market cap of $60 million, the 100% owner of Ixtaca is very undervalued on an asset basis. Of course, it needs the permit for the value to be realized, and repeated delays with consequent financings, have weighed on the market. For the investor who recognizes the riskcrazy governments can do crazy thingsAlmaden should be accumulated for a major payoff.
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”
Disclosure: 1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Evrim Resources, Midland Exploration and Lara Exploration. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Osisko Gold Royalties, Midland Exploration, Kingsmen Creatives, Lara Exploration, Evrim Resources, Almaden Minerals, Almadex Minerals and Altius Minerals. I determined which companies would be included in this article based on my research and understanding of the sector. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. 4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Osisko Gold, Evrim Resources, Midland Exploration, Almaden Minerals, Almadex Minerals, Altius Minerals and Lara Exploration, companies mentioned in this article.
Figuring out the market implications of political events is one of the more challenging aspects of market analysis.
Everyone has their own views on the partisan issues involved. And it’s no secret that people don’t always have rational reactions to political situations.
Plus, governments are notoriously not likely to do what makes the most economic or financial sense.
Fortunately for analysts, so far, the markets appear to be ignoring most of what’s been going on in the US Capitol. This is, of course, in reference to President Trump’s either treasonous or perfect phone call with the President of Ukraine, depending on where you stand.
Despite the recurring headlines of explosive revelations, the markets have been reacting to other things. And, so far, they’ve been unaffected.
It’s a Good Show
That’s not to say that there couldn’t be important market implications. Should the Senate vote to convict Trump, it would be a first in the country’s history. And the market would likely be very unhappy!
Vice President Pence will be present for the vote. The Chief Justice is also already at hand. So, should Trump be convicted, the new President would likely be sworn in immediately.
We expect the vote to be happening today.
The markets, however, see this as such a remote possibility that it’s not worth bothering with.
For virtually all analysts, it was from the beginning a foregone conclusion that the House would vote to impeach, and the Senate would vote to acquit. This leaves things practically where they were at the start.
It’s All About November
The aim, according to the consensus, is to make a political point.
The Democratic Party has concluded that Trump will be easier to defeat in November if he’s been impeached. Even if it’s just along party lines.
They point to the polls showing a majority of Americans believing that Trump should be removed from office. And, by keeping the focus on Trump, they might find it easier to unify disparate groups towards a common goal.
How well will this work?
Well, just ask pollsters who thought Hillary Clinton would be President now about the reliability of political projections this far ahead of the election. Or the pollsters that showed Mitt Romney had a good chance of beating Obama.
It’s Tradition
The reality is that it’s usually really hard to unseat an incumbent President without a third party “spoiler” candidate. The last time that happened was in 1980, with the election of Ronald Reagan, in the middle of an economic and political crisis.
Donald Trump’s polls have remained largely consistent since he was elected. This suggests that how the election will go has more to do with who the Democratic candidate is.
Running as an impeached presidential candidate will be a first. But, given the vote to do so was and likely will be along partisan lines, the public might take it the same way markets have…
It’s political theater. And that doesn’t change the underlying issues. Trump’s standing in the polls seems to be much more closely correlated to the perceived state of the economy than any of the numerous Washington scandals.
Given the potential of the coronavirus outbreak to affect the economy, it just might be that Trump’s electoral prospects have more to do with China than anything happening in the Senate this week.
Chinese government has used very strong measures to contain the spread of the coronavirus outbreak in Wuhan. The ultimate economic impact will depend on the eventual diffusion and infectiousness of the new virus.
After the outbreak of a new coronavirus (2019-nCoV) and evidence of human-to-human transmission, central government urged people to stay at home, restricted travel and cancelled major public events. That caused travel to plunge 29 percent on the first day of the Lunar New Year, but likely saved countless lives.
China extended Lunar New Year holiday to keep people at home and reduce the risk of the spread, while extending several billions of dollars to help contain the virus. As the number of the infected continues to accelerate and evidence of human-to-human transmission has been discovered in and outside China, the World Health Organization (WHO) has declared global health emergency.
While the full effect of the outbreak on the Chinese and the global economy is too early to estimate, probable impact scenarios can be assessed.
Despite enhanced capabilities, new risks
Internationally, markets have responded to virus outbreaks with sharp but temporary reactions until the spread is halted. Recently, analysts have used as a guideline to these projections the Severe Acute Respiratory Syndrome (SARS) in 2002-3. But that’s premature.
In the early 2000s, China’s efforts to control SARS were criticized as the disease spread internationally before the global outbreak was subdued. A decade later, Chinese response to the Avian influenza (H7N9) was significantly faster, broadly praised and the disease did not spread widely.
In recent years, China has significantly strengthened its national and local surveillance systems to prevent and control diseases. Laboratory and hospital capacity have been significantly reinforced. The record in emergency management is varied at local level.
However, despite improved Chinese capabilities and Chinese authorities alerting outside bodies, including the World Health Organization, to the novel coronavirus relatively quickly, there are now new risks, due to greater global integration. In 2003, China’s air, rail and road travel was only a fraction of what it is now and most Chinese lived in the countryside. Today, China has the world’s largest logistical hubs and 60 percent of people reside in densely populated cities. That’s the reason for the effort to insulate Wuhan and other urban centers in its proximity, altogether 51 million people – which is comparable to the total population of South Korea.
The timing also differs. Unlike SARS, the current outbreak took place before the Chinese Lunar New Year, which is accompanied by the world’s largest human migration. That’s why the government took extraordinary measures to reduce the risk of accelerated spread, which may set a new norm for struggle against epidemics in megacities.
Early human and economic costs
During SARS outbreak, 8,100 people worldwide were infected, while 774 died mainly in Chinese mainland and Hong Kong; 10 percent of the total. It was determined that the basic reproduction number – the number of people a newly-infected person is likely to pass the virus to – was about 2-5.
With the coronavirus, there are currently (8 pm Wuhan time, Jan 31) 9,776 confirmed cases in China, while 213 have died; that’s less than 2.2 percent of the total. According to early research, the reproduction number is 3.3-5.5. In other words, despite similar transmissibility, mortality rate in coronavirus seems to be less fatal (currently 2.2%) relative to SARS (11%) and particularly to Middle East Respiratory Syndrome MERS (35%).
However, health authorities suggest that symptoms may not show during the 2 to 14-day incubation period for the new coronavirus, which would undermine traditional containment practices. If the new virus can be detected only after considerable collateral damage, there is worse ahead, as Chinese authorities have suggested. The implication is that the exponential stage of the virus is still ongoing.
In the mainland, the current outbreak has already hit transportation, tourism and travel, restaurants and retail, which will impair near-term consumption data, while harming stocks most exposed to consumer markets. Globally, the damage was first felt in commodities, which react fast to outbreaks that typically penalize the sales of jet fuel, diesel and gasoline. In the past four weeks, crude oil plunged 15 percent until global health experts called for calm and reason.
What analysts are now monitoring is the milestone when the number of new infections begins to decelerate because that tends to signal the turning point for sentiment as well. But that may still be some way ahead.
While all early impact scenarios are subject to great epidemiological uncertainty, economic damage in past outbreaks typically hits first household consumption and trade. And it is likely to be compounded in major regional hubs, such as Wuhan, “China’s Chicago.” As government response takes off, outbreak spending will accelerate rapidly in emergency services.
If outbreaks prove protracted, they may penalize companies’ capital expenditures, which are sensitive to demand expectations, and cause disruptions in supply chains as reduced mobility generates temporary outages. Stringent financial conditions in markets are likely to further amplify collateral damage and thereby risk aversion.
Impact on economic growth in China
Before the outbreak, China was moving toward a mild recovery. Despite US trade war, GDP growth amounted to 6.1 percent in 2019. Given progressive deceleration, which is normal after intensive industrialization, China was expected to grow by 5.8 to 6.2 percent in 2020.
After the outbreak, three scenarios prevail. In the “SARS-like impact scenario,” a sharp quarterly effect – down to or below 5 percent – would be followed by a rebound in short order. The broader impact would be relatively low and regional. The impact on annualized growth would be relatively low.
In the “accelerated impact scenario,” the adverse impact would be significantly steeper in terms of growth and damage, while a rebound would follow only later. The impact on annualized growth would prove more significant. The broader impact would prove more significant and affect global prospects.
In the “disruptive impact scenario,” the adverse impact is harder to assess. Whether natural or synthetic, the new strain occurred in the worst time (before the largest human migration) and the worst place (huge regional hub which was expected to record 7.8% growth in 2020).
It is not the only recent anomaly. Last fall, African swine fever (ASF), which had never before seen in China but now mysteriously appeared with the onset of the US trade war, decimated half of China’s pigs, which doubled pork prices and contributed to inflation causing pricy US pork exports to double in China.
The odds for two such consequent anomalies, timing and location are exceedingly low. Yet both did occur – in almost perfect sequence.
For now, central government seeks to use maximum efforts to contain the outbreak of the novel coronavirus. Over time, it is likely to boost further national and local surveillance systems, and emergency management in megacities, while protecting China against potential external bio-threats that have destabilization potential.
About the Author:
The author is the founder of Difference Group who has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore)
A shorter version of the commentary was published by China Daily on January 31, 2020
