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| Market News: News Archive : Morning News Call Week ending |
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Jun 19, 2009
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FRIDAY, JUNE 19, 2009 CANADIAN EDITION
TOP STORIES
• RIM outlook disappoints, sending shares lower
• Stanford in U.S. court Friday in massive fraud case
• Former Merrill execs discussed buying back bank - report
• Commodities giant Glencore considers flotation - report
• Bailed-out bank CEOs used jets for own use - report
BEFORE THE BELL
Toronto's main stock index could open higher on Friday as a rise in commodity prices lift the resource-heavy market, but Research in Motion could weigh a day after it gave an outlook that disappointed markets. World stocks climbed on U.S. data released on Thursday, which renewed hope about economic recovery. Sentiment in the markets was also boosted by IMF's comment to raise its 2010 growth forecast for the world economy. European shares rose led by gains in banks and commodity stocks. Asian stocks snapped a four-day slide and oil was above US$72 a barrel.
STOCKS TO WATCH THIS MORNING
• Bombardier Inc. (BBDb). The planemaker lead consortium on Friday won vehicle modernization contract of about US$193 million in Brazil, of which Bombardier's share is about US$120 million.
• Geovic Mining Corp. (GMC). Production at the company's Cobalt-nickel-manganese project in Cameroon is now set for 2012 after a delay due to the global financial crisis, the company said on Friday.
• Greystar Resources Ltd. (GSL). The company on Thursday said CFO Pauline Pasetka has tendered her resignation and Frederick Felder will serve as acting CFO.
• PolyMet Mining Corp. (POM). The company on Thursday announced the drawal of third tranche loan of US$5 million under the convertible debt facility with Glencore AG. The company said the funds will be used to complete critical engineering work.
• Research In Motion (RIM). The BlackBerry maker offered investors an outlook on Thursday that fell short of some expectations, and reported a higher first-quarter profit that topped forecasts.
• Senvest Capital Inc. (SEC). The company on Thursday announced acceptance by Toronto Stock Exchange of normal course issuer bid for the purchase of about 5 percent of outstanding common shares.
ECONOMIC CALENDAR
08:30 Retail sales for April: Prior 0.3% Expected 0.1%
08:30 Retail ex-autos for April: Prior -0.2% Expected 0.0%
CORPORATE EVENTS
11:00 HudBay Minerals Inc. (HBM). Annual and special shareholders meeting
16:30 U.S. Geothermal Inc. (GTH). Q4 earnings conference call
ANALYST RECOMMENDATIONS
• Eldorado Gold (ELD) cut to neutral from buy at Dundee
• Evertz Technologies (ET) price target cut to $19.50 from $19.70; rating sector perform at Scotia
• First Uranium (FIU) price target cut to $7 from $10; keeps sector outperform rating at Scotia
• Franco Nevada (FNV) cut to neutral from buy; raised price target to $30 from $29 at UBS
EXDIVIDENDS
• ROC Pref II Corp. (RPA_pa). Amount $0.2906
• ROC Pref Corp. (PRF_pa). Amount $0.2688
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Goldman free of government but Buffett looms large
Now that Goldman Sachs Group Inc has settled its US$10 billion debt with the U.S. taxpayer, investors are wondering about the Wall Street firm's other looming presence -- Warren Buffett. Last September, shortly after Lehman Brothers Holdings Inc went bankrupt, but before the U.S. Treasury unveiled plans to bail out the banking industry, Buffett's Berkshire Hathaway Inc invested US$5 billion in Goldman and acquired preferred shares and warrants to buy common stock.
Goldman, which received US$10 billion from the Treasury's Troubled Asset Relief Program, known as TARP, repaid that money on Wednesday. But Buffett's presence is large, not just because of his huge investment, but also given his reputation for integrity and as one of the world's savviest investors.
So what will Buffett, the second wealthiest man in the United States, according to Forbes magazine, do?
"Basically not much," said Vahan Janjigian, author of the book 'Even Buffett Isn't Perfect.'
"He has a history of making fairly large investments in these kinds of companies and sitting back and letting the management team run the company."
Janjigian expects Buffett to sit tight as Berkshire collects US$500 million of annual dividends on the preferred shares and earns paper profits on accompanying warrants to buy US$5 billion of common stock at US$115 per share for up to five years.
Goldman closed on Thursday at US$143.09, meaning Berkshire would earn more than US$1 billion in profits if it cashed the common stock warrants now. That is in addition to the 10 percent preferred stock dividend, which is twice the 5 percent rate the government was getting from the TARP investment.
A Goldman Sachs spokesman declined to comment and Buffett did not return a message left with his assistant seeking comment.
Despite what Goldman gave up, the Buffett deal was critical at the time, said Marshall Sonanshine, the chairman and managing partner of Sonanshine Partners.
"It was sensible when it was done, but tragic it had to be done the way it was done," said Sonanshine. "The last four months of 2008 were such an extraordinary time of fear and financial collapse one cannot realistically ask: 'Should we have? Might we have? Could we have?' The point is Goldman is a very strong franchise."
INVESTMENT PROSPECTS WERE DIM
Buffett's investment didn't always look so promising.
In November, two months after he made his move, Goldman common shares were as low as US$47.44. Some doubted the wisdom of Buffett's investment and began to question his stewardship of Berkshire itself.
But Buffett stuck with Goldman through all the ups and downs -- even after his trusted investment banker, Byron Trott, announced planned to strike out on his own.
Bill Bergman, an equity analyst with Morningstar Inc in Chicago, recalled an October newspaper column in which Buffett said he planned to buy stock in U.S. companies.
"No one is noticing now that the market is above where it was when he wrote the article," Bergman said.
Bergman initially expected Goldman to be a safe and strong investment for Berkshire.
"That is what it looks like increasingly," he added.
And making the deal even sweeter, Goldman's top executives are publicly committed to protecting Buffett's investment.
In a regulatory filing in October, a group of Goldman executives, including Chief Executive Lloyd Blankfein, agreed not to sell more than 10 percent of their common shares in Goldman until October 2011, or until Berkshire redeems the US$5 billion in preferred stock it purchased last year.
Gary Townsend, the president and chief executive of Hill- Townsend Capital LLC, said it was obvious Buffett will stick with Goldman over the long haul.
"Buffett tends to be a long-term holder," Townsend added. "I don't see him quickly leaving."
And with a deal like that, why should he?
--- Steve Eder, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Jun 18, 2009
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THURSDAY, JUNE 18, 2009 CANADIAN EDITION
TOP STORIES
• Canada annual inflation at 15-year low in May
• Canadian dollar ticks up after domestic inflation data
• Talisman finds oil near Varg field off Norway
• Shire, J&J win key drug data case at top EU court
• BofA paying big bonuses to retain bankers - report
BEFORE THE BELL
Toronto’s stock index could open mixed on Thursday after Statistics Canada said annual inflation slowed in May to its lowest in nearly 15 years amid falling commodity prices. U.S. index futures were flat as investors looked ahead to weekly jobless claims for guidance on the market. Traders are also be following the Treasury Secretary Timothy Geithner’s testimony, who will be speaking before two Congressional panels on the Obama administration's proposed financial regulatory reform. European stocks extended losses to a fifth day, pressured by falls in energy firms and miners, while defensive tobacco and telecoms stocks gained on further risk aversion. Asian stocks retreated with some investors booking profits after solid gains in the second quarter sparked by signs the global economy is starting to recover. Oil eased below US$71 a barrel, reversing early gains.
COMPANIES REPORTING EARNINGS
• Research In Motion Ltd. (RIM). Expected to report Q1 earnings of 94 cents a share, according to Reuters Estimates
STOCKS TO WATCH THIS MORNING
• Air Canada (ACa).The Canadian government appointed two mediators on Wednesday to help the country's biggest airline and the union representing its flight attendants to reach a labor agreement.
• Bombardier (BBDb). EU regulators have authorised a repayable cash advance of 113.7 million pounds that Britain plans to give Short Brothers, a unit of the planemaker, the European Commission said on Thursday.
• Cameco Corp. (CCO). The uranium producer is keeping a close eye on a forest fire burning not far from its massive Key Lake uranium mill in the western Canadian province of Saskatchewan, but a company spokesman said on Wednesday the operation is running normally and the fire appears to be in retreat.
• Evertz Technologies Ltd. (ET). The broadcast equipment company on Wednesday posted a nearly flat fourth-quarter profit as a rise in revenue was offset by a spike in operating expenses.
• IAMGOLD Corp. (IMG). The company on Thursday raised its 2009 gold production forecast to 910,000 to 920,000 ounces, which is an increase of 30,000 to 40,000 ounces. The company also expects capital expenditures of US$448 million.
• Kodiak Exploration Ltd. (KXL). The explorer on Wednesday announced a option agreement with Kirrin Resources to earn up to 70 percent interest in the company’s Otish Basin Uranium prospects.
• Magna International Inc. (MGa). Russia's largest car maker AvtoVAZ could be folded into an alliance with Opel and The Canada's auto parts maker as part of a plan to double Opel's production in five years, the head of Sberbank said.
• Talisman Energy (TLM). The upstream oil and gas company has struck oil in an appraisal well near the Varg field off Norway, Norwegian energy officials and a partner in the field said on Thursday.
• Teck Resources Ltd. (TCKb). The company plans to sell a one-third stake in its Waneta Dam in British Columbia to BC Hydro for $825 million, the companies said on Wednesday. Teck expects to record a $625 million pre-tax gain from the deal, and will use the money to help pay down its debt. It will continue to receive power from the dam for its Trail, British Columbia smelter.
• WestJet Airlines Ltd. (WJA). The Canadian second-largest carrier’s pilots have ratified a four-year labor deal, the company said on Wednesday, without divulging details of the agreement.
CORPORATE EVENTS
09:00 OccuLogix Inc. (TLB). Annual and special meeting of the stockholders
09:35 Nexen (NXY). Shareholders meeting
17:00 Research In Motion Ltd. (RIMM). Q1 earnings conference call
17:00 Paramount Energy Trust (PMT_u). Shareholders meeting
-- Breakwater Resources Ltd. (BWR). Shareholders meeting
ANALYST RECOMMENDATIONS
• Calloway REIT (CWT_u) price target raised to $13.50 from $12; rating market perform at Raymond James
• Evertz Technologies (ET) price target raised to $19 from $18; rating outperform at Raymond James
• First Uranium Corp. (FIU) price target cut to $6.50 from $8.50 at Raymond James
• Paladin Energy (PDN) cut to market perform from outperform at Raymond James
• Petro Andina Resources Inc. (PAR) price target raised to $9 from $8; rating outperform at Raymond James
• Seacliff Construction Corp. (SDC) raised to outperform from market perform at Raymond James
• WesternZagros Resources (WZR) raised to outperform from market perform at Raymond James
EXDIVIDENDS
• Aecon Group Inc. (ARE). Amount $0.05
• Ensign Energy Services Inc. (ESI). Amount $0.085
• Hammond Power Solutions Inc. (HPS_A). Amount $0.10
• IGM Financial Inc. (IGM). Amount $0.5125
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Apartments lead the U.S. property default parade
The multifamily sector is leading all other types of U.S. commercial real estate in having the highest loan default rate but the others are likely to follow, experts say.
Defaulted apartment loans that back commercial mortgage backed securities (CMBS) in May surpassed 5 percent, while retail and lodging broke the 3 percent level and overall delinquencies were 2.77 percent, according to Trepp, which tracks CMBS issues.
Bank loans for apartment buildings defaulted at a rate of 2.45 percent in the second quarter, while those of all other commercial real estate mortgages held by depository institutions reached 2.25 percent, according to research firm Real Estate Econometrics.
Apartment building prices peaked in the fourth quarter 2006, according to research firm Real Capital Analytics. Peak prices for other classes of real estate followed -- hotels in the first quarter 2007, offices and retail in the second quarter 2007, and warehouses in the third quarter 2007.
"Because it peaked first, some of the deterioration has come on a little earlier," said Sam Chandan, Real Estate Econometrics president and chief economist said.
"You've got these waves of issues that are driving defaults for commercial," Chandan said."
Overly generous and plentiful loans pervaded across the U.S. commercial real estate sectors 2004 through 2007 and pushed up values. Getting a loan today is tough. Falling rents and occupancies along with fewer available and lower loans have pushed down values 35 percent to 40 percent. That has resulted in higher defaults.
The apartment sector usually is early to feel economic changes because of its short one-year leases. The default rate among hotels, which have one-night leases, is lower, but likely to surpass apartments soon, Chandan said.
Yet other factors have humbled the apartment sector.
In some markets, prices of many apartment buildings were driven up by investors planning to convert them into condominiums during the housing boom, which ended abruptly in 2006. When the housing market collapsed, condominiums for rent drove down market rents.
In other areas, some of the biggest deals involved pricing based on turning rent stabilized apartments into market rate apartments. That proved more difficult and sent some deals, such as the Riverton, a 12-building apartment complex in New York City's Harlem, into default.
The weak U.S. economy zapped job growth, the key driver of demand for apartments. The U.S. unemployment rate in May reached 9.5 percent. Among 18 to 24 year olds it was 15 percent. About 70 percent are apartment renters who are now doubling up or moving in with their parents.
Higher-end apartments no longer command top prices simply because of amenities.
"Most renters are paying for value, in absolute dollars," said Mike Kelly, president and co-founder of Caldera Asset Management. "They're not going to pay an extra 50 bucks because you have a cabinet in granite."
Caldera helps multifamily lenders maintain the value of properties in pre-foreclosure or throughout foreclosure.
Buyers of lower-end "C" low-rise apartment complexes were not professional real estate investors and were unable to navigate the economic downturn.
"They were thinking they could hire a management company and run a 'C' multi," said Michael Katz, a CMBS veteran and current director of Clark Street Capital, which helps link loan buyers and sellers via an online marketplace. "A 'C' multi is very much like a hotel. You have to know how to handle your clients. There's a lower level of consumer who really doesn't mind being late on their rent."
A large majority of the bank loans financed construction of new apartments and were issued to professional merchant builders, with track records of building new apartments and selling them to investors. Although their default rate is high, many of those floating-rate loans are still performing because they are based on LIBOR, which has tumbled.
"They've been able to offset the poor economics and poor property performance by not paying as much interest," Kelly said.
--- Ilaina Jonas, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Jun 17, 2009
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WEDNESDAY, JUNE 17, 2009 CANADIAN EDITION
TOP STORIES
• Addax sparks US$8 bln bid battle
• Fighting off hostile bid from Agrium
• Obama to unveil plans for financial rules
• FedEx reports larger loss, gives low outlook
• Watson to buy Arrow for US$1.75 bln
BEFORE THE BELL
Toronto's main stock index could open lower on Wednesday as weak oil and gold prices weigh on the resource-laden market. Investors may also be cautious ahead of a key speech by U.S. President Barack Obama which will lay out a regulatory reform package aimed at avoiding a repeat of the banking crisis. Oil fell below US$70 a barrel pressured by weaker stock markets as investors awaited a U.S. inventory report expected to show supplies declined in the world's top consumer. Gold edged lower as the dollar retraced its early losses against a basket of currencies, with traders awaiting direction from U.S. inflation data due later in the session. European and Asian stocks outside Japan fell for the fourth day, weighed by banks and commodities and rising doubts about a global economic recovery.
COMPANIES REPORTING EARNINGS
• Evertz Technologies Ltd. (ET). Expected to report Q4 earnings of 29 cents a share, according to Reuters Estimates
STOCKS TO WATCH THIS MORNING
• Agrium Inc. (AGU). U.S. fertilizer maker CF Industries said on Tuesday it is still committed to buying rival Terra Industries Inc as it faces down a hostile bid from the Canada’s fertilizer maker.
• Banro Corp. (BAA). The gold exploration and development company on Tuesday announced that the price of each share which is distributed will be determined in context of market. The company also added it intends to use net proceeds for advancing its gold projects in the democratic republic of Congo.
• Benchmark Energy Corp. (BEE). The said on Tuesday it terminated previously announced business combination with Delavaco Energy, paying $150,000 as termination fee.
• Bronco Energy Ltd. (BCF). The oil and gas company on Tuesday appointed Paul Belliveau as the CFO.
• Cline Mining Corp. (CMK). The company said on Tuesday the re-opening of its New Elk metallurgical coal mine continues to proceed as planned.
• Cominar Real Estate Investment Trust (CUF_u). The trust on Tuesday said it would raise about $50 million by selling 3.3 million units to a syndicate of underwriters led by National Bank Financial Inc and BMO Capital Markets.
• Detour Gold Corp. (DGC). The explorer on Tuesday said it plans to sell 4 million shares at $12.10 apiece for gross proceeds of about $48.4 million.
• First Nickel Inc. (FNI). The company said on Tuesday it entered into a commitment letter with Resource Capital Fund IV LP of US$10 million for convertible working capital facility, and the fund will be used to begin incremental capital development activities at Lockerby mine.
• IMAX Corp. (IMX). The giant-screen movie theatre company said on Tuesday it signed a theatre deal with BIG Cinemas, a Reliance ADA Group Co, in India to install IMAX's new digital projection system in BIG Cinemas' theatre in Mumbai.
• Resin Systems Inc. (RS). The technology company on Tuesday announced rights offering in which for every four rights held, a holder can purchase one common share at a price of 33 cents.
• TransCanada Corp. (TRP). The pipeline operator is buying ConocoPhillips' remaining stake in the Keystone pipeline for US$550 million, giving it full control over the new Canada-to-United States oil pipeline, it said on Tuesday.
• Yalian Steel Corp. (YL). The company on Wednesday secured $27.5 million credit facility which has a three-year term at an interest rate of 5.4 percent.
• Yamana Gold Inc. (YRI). The company on Wednesday said work at its early-stage and development-stage projects in Mexico, Brazil and Chile has advanced further, and it may soon raise its gold resource estimates at certain sites.
ECONOMIC CALENDAR
08:30 Wholesale trade for April: Prior -0.6% Expected -0.5%
08:30 Leading indicators for May: Prior -1.1% Expected -0.6%
CORPORATE EVENTS
10:00 Ivernia Inc. (IVW). Annual and special meeting of shareholders
17:00 Evertz Technologies Ltd. (ET). Q4 earnings conference call
ANALYST RECOMMENDATIONS
• Domtar (UFS) cut to neutral from overweight at JP Morgan
• Discovery Air (DAa) price target cut to $20 from $30; rating neutral at Versant
EXDIVIDENDS
• Brascade Corp. (BCA_PRA). Amount $0.2938
• FirstService (FSRV). Amount US$0.4375
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Bernanke's handling of U.S. economy gets strong mark
Federal Reserve Chairman Ben Bernanke earned a better grade for managing the U.S. financial crisis than he did six months ago in the eyes of analysts surveyed by Reuters, a poll released on Tuesday showed.
Economists gave Bernanke an average grade of 8 out of 10 for how he has steered the world's largest economy through the vicious storm that hit in August 2007 and has dragged the U.S. economy into one of the deepest recessions in decades.
The sunnier evaluation reflects early signs the United States is emerging from the crisis and that the deep recession that began in December 2007 may be moderating.
Bernanke, who made his reputation as an academic with his study of the Fed's mistakes during the Great Depression, earned a 7 out of 10 mark in a poll conducted in mid-December.
"He has an innate understanding of economic history and I cannot think of anyone I would sooner have seen at the helm," said Stephen Pope of Cantor Fitzgerald.
Bernanke's 8 out of 10 grade is also slightly better than the 7 out of 10 that primary dealers handed to the central bank generally on its handling of the crisis in an early March poll when U.S. stock markets were near multi-year lows.
While Bernanke drew praise in the latest poll for his aggressive steps to blunt the effects of the crisis, not everyone was impressed with his tactics, which have included pumping hundreds of billions of dollars worth of emergency funds into the financial system.
Four out of the 39 economists polled said President Barack Obama will name White House National Economic Council Director Lawrence Summers to chair the Fed instead of Bernanke, whose term expires Jan. 31.
"We have yet to see the legacy of the ballooning of the Fed's balance sheet--which could be a disaster," said Ken Mayland of ClearView Economics.
The Fed is already faced with the challenge of convincing nervous financial markets it can unwind its policies quickly enough to avoid a dangerous spike in inflation.
Bernanke's strong standing among economists may not be enough to assure him of reappointment in a decision with political nuances for the Obama administration, which hopes to keep the Democratic party in the majority after congressional elections in November 2010.
The Fed faces stiff political pressure from U.S. lawmakers concerned that the Fed failed to halt the risky practices that led to the crisis and then used its emergency powers too freely and with too little accountability.
Ten analysts said that if Obama does not select Bernanke, he will choose Summers to lead the Fed.
Summers, a former senior Treasury Department official in the administration of President Bill Clinton, is widely viewed as a gifted economist but prone to blunt comments that sometimes arouse controversy.
Some analysts said that Bernanke's removal in favor of Summers would be unsettling for markets.
"The alternative selection of Larry Summers would compromise the viability of the Federal Reserve," said Mike Cosgrove of Econoclast.
-- Mark Felsenthal, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Jun 16, 2009
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TUESDAY, JUNE 16, 2009 CANADIAN EDITION
TOP STORIES
• Air Canada, unions ink deal on pension funding
• U.S. judge denies Coyotes sale to RIM's Balsillie
• Sinopec's Addax bid makes little progress – report
• Agnico-Eagle raises credit lines to over US$900 mln
• Nomura, T&D bid for Citi Japan unit
• GM says reaches deal to sell Saab to Koenigsegg
BEFORE THE BELL
Toronto's main index may open higher on Tuesday as renewed U.S. dollar weakness could give strength to commodity stocks. The dollar stumbled after Russian President Dmitry Medvedev underlined the need for new global reserve currencies before a BRICs summit, which traders took as a signal that Moscow may be looking to cut the share of U.S. assets in its currency portfolio. The investors’ eyes would also be set at the flurry of U.S. data that is scheduled to release during the day. U.S. futures turned positive after initial jittery start. European shares inched higher as energy and defensive stock gains offset bank losses after a planned rights issue by National Bank of Greece revived fears over banks' balance sheets. Asian stocks fell, as investors cut their holdings of riskier assets. Oil was steady above US$72 while gold gained 0.8 percent.
STOCKS TO WATCH THIS MORNING
• Addax Petroleum (AXC). China's Sinopec Group, Asia's top oil refiner, has made no significant progress with its bid for the Swiss-based oil explorer, Caijing magazine quoted an unnamed company official as saying on Tuesday.
• Adriana Resources Inc. (ADI). The explorer on Monday appointed Allen Palmiere as new president & CEO of the company.
• Agnico-Eagle Mines Ltd. (AEM). The gold producer on Monday signed a new credit facility with a syndicate of international banks that increased its credit lines to over US$900 million.
• Air Canada (ACa) (ACb). The Canada's largest airline on Tuesday said it has completed tentative agreements with all its unionized workforce in the country on a pension funding moratorium.
• Bombardier (BBDb). The financing situation for the purchase of business jets is difficult, the president and COO of Bombardier Aerospace told Reuters Television at the Paris Air Show on Tuesday.
• Canadian Natural Resources Ltd. (CNQ). The oil company’s recent agreement to co-operate with state-run Qatar Petroleum International may lead to investments in the Middle East, the president of the company said on Monday.
• Canwest Global Communications (CGS). The Canada's largest media company has gained another two weeks in its bid to reach a deal on a recapitalization plan, the company said on Monday.
• Discovery Air Inc. (DAa). The aviation related business operator on Monday reported first-quarter loss of 4 cents a share, on revenue of $25.6 million.
• Excellon Resources Inc. (EXN). The mineral resource company on Monday reported third-quarter EPS $0.004.
• GLV Inc. (GLVa). The plant equipment maker on Monday announced treasury offering of 4.2 million subordinate voting shares at $7.25 per share. The company also said it plans to use net proceeds for acquiring complimentary services, technologies or businesses.
• Heroux-Devtek Inc. (HRX). The company said Tuesday it was awarded a multiyear contract of $10 million related to electronic chassis components for the F-35 Lightning II aircraft.
• Impax Energy Services Income Trust (MPX_u). The company on Tuesday appointed Karim Hirji as CFO, replacing John Anderson, who has stepped down.
• Nuvo Research Inc. (NRI). Medical products maker Covidien Plc will license rights to two Nuvo Research topical anti-inflammatory medicines as it expands into the branded pain market, the companies said on Tuesday.
• Patheon Inc. (PTI). JLL Partners announced on Tuesday the extension of its offer to acquire the contract drugmaker and take up of deposited restricted voting shares.
• Profound Energy Inc. (PFX). The company late on Monday announced extension of offer to acquire by Paramount Energy Trust (PMT_u) till June 29.
• Research In Motion (RIM). The smartphone maker on Monday said it is adding another smartphone BlackBerry Tour to its BlackBerry lineup as it aims to win market share among both executives and mainstream consumers despite tough economic conditions.
• Rogers Communications Inc. (RCIb). The company on Monday agreed to purchase 0.18 percent or 930,000 class B non-voting shares for cancellation in private purchase.
• Talisman Energy Inc. (TLM). British oil and gas explorer Rift Oil Plc on Tuesday said it agreed to be acquired by Canada's independent oil exploration firm in a cash deal valued at about US$186.8 million.
• Tundra Semiconductor Corp. (TUN). The intellectual property firm said its shareholders approved the company's takeover by a Canadian unit of U.S. chipmaker Integrated Device Technology Inc.
• Uranium One (UUU). The uranium producer plans to leverage its new links with Russia and Japan into a top-tier position among uranium producers, and sees Africa as the next hot spot for mining of the increasingly in-demand mineral, CEO Jean Nortier said on Monday.
ECONOMIC CALENDAR
08:30 Labor productivity for Q1: Prior -0.5% Expected -0.3%
CORPORATE EVENTS
10:00 Gran Tierra Energy Inc. (GTE). Annual meeting of stockholders
-- Aecon Group Inc. (ARE). Shareholders meeting
ANALYST RECOMMENDATIONS
• Vast Exploration Inc. (VST) price target raised to $0.70 from $0.40; rating buy at Genuity
EXDIVIDENDS
• Akita Drilling Ltd. (AKTb). Amount $0.07
• Canadian Western Bank (CWB). Amount $0.11
• Dundee Wealth Mgmt Inc. (DW). Amount $0.02
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Cuba's offshore oil hopes rise, U.S. role uncertain
A huge offshore drilling platform will soon be lumbering its way to Cuba, an event that could kick-start Cuba's bid for energy independence and pressure the Obama administration to allow American companies a piece of the action.
Although arrival details are murky, a rig has been found after a long search and could be drilling off Cuban waters in the next six to eight weeks by an international consortium looking to unearth a Caribbean energy trove, according to industry and diplomatic sources.
Industry players said finding a rig to drill in the deep waters was problematic because of the need to use equipment with less than 10 percent American technology, to comply with the long standing U.S. embargo against Cuba.
"It's a very sizable reserve that is well documented," said Jonathan Benjamin-Alvarado, political scientist at the University of Nebraska at Omaha.
Kirby Jones, president of Washington-based Alamar Associates, which advises companies wishing to enter the Cuban market, said an oil find would change the dynamics of the U.S.-Cuba relationship which have just begun to thaw under initiatives by President Barack Obama.
"The implications for Cuba are huge and the implications for U.S. relations are huge," Jones said. "It's the first time Cuba will have something of strategic importance to the United States."
President Obama has pledged a new beginning with Cuba and announced easing of some restrictions in a relationship that has remained frigid for nearly half a century.
U.S. COMPANIES MISS OUT?
A consortium lead by Spain's Repsol-YPF will be the first to begin drilling after taking possession of the rig. Repsol drilled a test well in 2004 and at the time said it discovered traces of high quality oil, but it was not commercially viable at the time.
Repsol has an agreement with Cuba for exploration on six offshore blocks and will this time team with Norsk Hydro and ONGC Videsh of India on the project.
One industry source said the drilling platform could eventually be used by other foreign interests for drilling offshore -- especially if results are promising.
But U.S. companies will be missing out, unless the Obama administration moves soon to exempt American roughnecks from the embargo between the two old adversaries.
The fields off Cuba's northern coast are estimated to contain some 5 billion barrels of oil and 10 trillion cubic feet of natural gas, according to the U.S. Geological Survey.
In the past, Cuba has said it would welcome American participation and U.S. industry is also keen to get involved and not lose out to foreign interests. Cuba is also wary of being overly dependent on Venezuela, headed by the mercurial Hugo Chavez, according to analysts.
Brian Petty, senior vice president of government affairs at the International Association of Drilling Contractors in Washington, said the industry is very keen on Cuba's prospects.
"Because the seismic information that was developed offshore Florida, the eastern Gulf of Mexico in the (19)80s indicated very strong hydrocarbon potential, especially for natural gas," he said.
Not everyone is happy about drilling beginning offshore Cuba. Florida, a tourism-dependent state, is worried about spills and keeping its beach vistas free from unsightly rigs.
Cuba produces the equivalent of 75,000 barrels a day of oil and gas, or about 50 percent of its energy needs. It depends on Venezuela for the rest.
IN US INTEREST?
For the Obama administration, allowing Cuba to be independent of Venezuela might be of interest to the country.
"The U.S. ought to look at allowing Cuba to develop their oil development area because that is the way to lessen the political influence of Venezuela in the future government of Cuba," said Jorge Pinon, an Energy Fellow at the Center for Hemispheric Policy at the University of Miami.
Benjamin-Alvarado, of the University of Nebraska, said if Cuba became a big oil producer and refiner, the U.S. could seek strategic arrangements where it could buy refined products from the country when U.S. capacity is shutdown by hurricanes.
"It would probably be wise of the United States to seek opportunities and alternatives to the concentration of those resources in the Caribbean or nearby," he said.
Some U.S.-Cuba watchers doubt the administration will move quickly on further easing of ties, which could prove costly for the oil industry.
"If Cuba starts drilling tomorrow and they find oil and the embargo is still in effect, the U.S. sector is going to lose business and will never be able to recover that lost business in the petroleum equipment and service sector," said Pinon.
-- Russell Blinch, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Jun 15, 2009
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MONDAY, JUNE 15, 2009 CANADIAN EDITION
TOP STORIES
• IMF says worst not over; record fall in Euro jobs
• EnCana hedges 35 pct of natural gas production
• Obama to lobby U.S. doctors on healthcare reforms
• Saab likely to unveil new owner this week
• Boeing sees mid-2010 commercial plane recovery
• Citi, IFC in US$1.25 bln global trade alliance - report
BEFORE THE BELL
Toronto’s main stock index could open lower on Monday as commodity prices tumbled across the board after a strong dollar triggered a sell-off and investors worried prices had run ahead of fundamentals. On the macro front, investors will be watching the release of manufacturing sales data for the month of April, which is expected to fall at 1.6 percent, according to a Reuters poll. European shares fell, weighed down by oil and gas stocks as a stronger dollar depressed commodity prices. Asian shares were down, pulling further back from eight-month highs hit earlier this month, as investors fretted over whether the global economy had improved enough to justify another rally. Oil fell to around US$71 a barrel, extending its retreat from a near eight-month high.
STOCKS TO WATCH THIS MORNING
• Addax Petroleum (AXC). Credit Suisse (CS) is advising Chinese state-controlled oil company Sinopec on a bid for the Swiss-based oil explorer, a source familiar with the matter said on Monday.
• Bombardier Inc. (BBDb). The Canadian plane and train maker said on Monday it sees continued volatility in the aerospace industry in the near term.
• CAE Inc. (CAE). The provider of simulation and modeling technologies on Monday won series of C-130 contracts which is worth about $115 million and added the total value more than $60 million will be applied to its fiscal year 2010.
• Chartwell Technology Inc. (CWH). The developer of internet gaming software on Friday reported second-quarter loss of 3 cents a share, on revenue of $4.6 million.
• CryptoLogic Ltd. (CRY). The internet casino and branded gaming software company said on Monday it had signed a three-year agreement to provide at least nine of its most popular online slot games to Irish bookmaker Paddy Power Games.
• EnCana Corp. (ECA). The Canada's biggest energy company on Monday established fixed price hedges on about 35 percent of its expected natural gas production as part of its extended risk management program for 2010.
• Magna International Inc. (MGa). Russia and Canada support Germany's deal to sell Opel to the Canadian auto parts supplier, which is backed by Russian companies, German Finance Minister Peer Steinbrueck said on Saturday.
• Orsu Metals Corp. (OSU). The company said on Monday it agreed to sell its Varvarinskoye gold-copper project in Kazakhstan to Russian precious metals miner Polymetal for about US$235 million.
• Raymor Industries Inc. (RAR). The producer of advanced materials and nanomaterials, dismissed its COO on Friday and said it received the final approval from the TSX Venture Exchange in connection with its previously announced private placement offer.
• SNC-Lavalin Group Inc. (SNC). The provider of services such as engineering, procurement, construction and project financing on Saturday signed a contract worth 79.3 billion dinars on Saturday to build gas treatment facilities in Algeria, Algerian official news agency APS said.
• Uranium One Inc. (UUU). The miner on Monday agreed to buy a 50 percent stake in Kazakhstan's Karatau Uranium mine from Russian state-owned miner JSC Atomredmetzoloto in a cash and stock deal worth US$385 million in a move to boost its output.
ECONOMIC CALENDAR
08:30 Manufacturing sales for April Prior -2.7% Expected -1.6%
CORPORATE EVENTS
11:00 Tundra Semiconductor Corp. (TUN). Special shareholders meeting
17:30 Huntingdon Real Est Investment Trust (HNT_u). Annual and special meeting of unitholders
-- Serica Energy Plc. (SQZ). Annual general meeting
ANALYST RECOMMENDATIONS
• Bell Aliant Regional Communications Income Fund (BA_u) cut to sector perform from outperform at National Bank
EXDIVIDENDS
• Epcor Power Equity Ltd. (EPP_PRA). Amount $0.075
• Prism Medical Ltd. (PM). Amount $0.3031
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
China wants U.S. to assume global duty of care for dollar
If you owe your bank US$1,000 you have a problem, but if you've borrowed US$1 million it's the bank that has the problem.
Going by that old maxim, then China, which has lent the United States upwards of US$1.3 trillion, has a very big problem.
And it knows it. As a consequence, Beijing is diversifying its overseas investments and pressing U.S. officials for an "exit strategy" from the ultra-loose fiscal and monetary policies that China fears will eventually inflate away the value of its U.S. bond holdings and fell the dollar.
But China's pragmatic policymakers also know there is no practical alternative to the dollar as the world's main reserve currency.
Which is why bankers say any rhetoric from Tuesday's inaugural BRICs summit in Russia about the need for the United States to cede power in global financial institutions should not be taken as a signal that Beijing is positioning the yuan to challenge the dollar's supremacy.
The BRICs summit in the Urals city of Yekaterinburg will bring together the leaders of Brazil, Russia, India and China.
"We have seen the growing integration of the Chinese financial system into the global economy, and over time we will see a gradual enhancement of the role of renminbi," Charles Dallara, managing director of the Institute of International Finance (IIF), told a meeting of his group in Beijing last week.
"Will it replace the dollar?" Dallara asked. "The fact is that I don't think this is what Chinese officials want."
THE SDR FEINT
For sure, Zhou Xiaochuan, the governor of the People's Bank of China, caused a stir with an essay in March arguing that the Special Drawing Right, the International Monetary Fund's unit of account, might one day displace the dollar.
But diplomats and bankers who have recently visited the central bank say Zhou admits the proposal is unrealistic. They say his aim was to draw attention to concern expressed by Premier Wen Jiabao about the safety of China's vast dollar holdings.
In particular, these people said, Zhou wanted to revive a debate over the so-called Triffin Dilemma.
Belgian-born economist Robert Triffin argued in 1960 that the United States could not supply enough dollars to satisfy the global appetite for reserves without triggering inflation, which in the long term would erode the dollar's value.
"Issuing countries of reserve currencies are constantly confronted with the dilemma between achieving their domestic monetary policy goals and meeting other countries' demand for reserve currencies," Zhou wrote. "The Triffin dilemma ... still exists."
Concretely, bankers said Beijing was acting on its concerns by urging the U.S. government to issue more Treasury Inflation Protected Securities. Unlike conventional bonds, TIPS shield their owners in the event of a rise in inflation.
SHREWD SWAPS
Don Hanna, acting chief economist at Citibank, said China had less to fear from the inflationary potential of the Fed's quantitative easing than from the dire U.S. fiscal outlook.
Faced with huge future pension and health care liabilities, America's debt profile was not sustainable, Hanna said. But other rapidly ageing developed countries were in the same boat.
"It means that if you're going looking for other assets that would be 'safer', there aren't many of them out there," he told the IIF conference. "So we should not expect any rapid alteration in the allocation of resources by the Chinese -- or aggressive changes by anyone else for that matter."
Still, China is striving at the margins to diversify a national overseas investment portfolio that is massively concentrated on dollar claims on the United States.
-- Beijing has said it will buy up to US$50 billion worth of SDR-denominated bonds to be issued by the IMF.
-- The government is pressing Chinese firms to invest overseas, especially in the natural resources sector; it has extended US$45 billion in credit to Russia, Brazil, Venezuela and Angola in return for long-term oil supplies; and it has been frantically building up stockpiles of commodities.
-- The PBOC has arranged currency swap deals with six countries since December totalling 650 billion yuan (US$95 billion) so that trade and investment with China can be conducted in yuan, not dollars.
Hanna said these swaps were a shrewd move as they would allow China to accumulate claims on the rest of the world without increasing its exposure to the U.S. currency.
"To the extent that it expands the invoicing of its trade in yuan, it is trading FX risk for credit risk," Hanna said.
NOT SO FAST
In a related policy innovation, China will soon allow selected firms in the southern province of Guangdong that trade with Hong Kong to settle their transactions in yuan, or renminbi.
Fang Xinghai, director-general of the Shanghai municipal government's Office of Financial Services, said the initiative was an important step towards making the yuan convertible.
"Why would we want in the midst of this financial crisis to make China's financial system more connected with the rest of the world?" Fang asked rhetorically.
"As China's trade and investment has spread all over the world, it is practically impossible to keep our financial system closed as well as the currency permanently non-convertible. If anything, our trading partners will not allow us to do so."
Fang's enthusiasm is linked to his ambitions to see Shanghai become an international financial centre by 2020: a convertible yuan would presumably spawn keen demand from global investors for Chinese financial assets listed and traded in Shanghai.
Russia, for one, has expressed an interest in adding the yuan to its reserves once the currency is convertible. Moscow has also floated the idea of settling two-way trade in roubles and yuan.
William Rhodes, the senior vice-chairman of Citi, acknowledged the growing interest in denominating trade in yuan.
But Rhodes, a frequent visitor to Beijing, was circumspect. "All of this happens in stages. The Chinese are very cautious in all of this," he told Reuters.
--- Alan Wheatley, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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(Please note Canadian quotes are delayed 15 min)
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