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| Market News: News Archive : Morning News Call Week ending |
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Feb 19, 2010
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FRIDAY, FEBRUARY 19, 2010, CANADIAN EDITION
TOP NEWS
• Magna's buy of Karmann assets draws cartel scrutiny
• MDS to buy back up to 46 percent of shares
• Mega Brands files for Chapter 15 in US court
• Schlumberger in talks to buy Smith International - report
• Toyota head prepares for Congress grilling on recalls
BEFORE THE BELL
Toronto's main stock index may open lower on Friday as commodity prices are pressured by a higher dollar after the U.S. Federal reserve raised its discount rate. The Fed hiked the emergency lending rate by 25 basis points on Thursday, but insisted borrowing costs would not rise for consumers or companies, which prompted investors to price in a greater likelihood of a rise in the benchmark fed funds rate late this year. On the macro front, investors will focus on December retail sales, which is expected to have risen 0.5 percent, from a fall of 0.3 percent in the prior period, according to a Reuters poll. European and Asian shares fell, with banks among worst performers. Oil fell towards US$78 a barrel and gold steadied around US$1111 an ounce.
STOCKS TO WATCH THIS MORNING
• Agrium Inc. (AGU). The fertilizer company on Friday extended its offer to acquire CF Industries Holdings Inc, for US$45.00 in cash plus one Agrium share per CF share, to March 22, 2010.
• Birchcliff Energy Ltd. (BIR). The company said 2010 capital budget increased 78 percent from prior year and expects first-quarter production to average 10,350 boe per day. For the fourth quarter average production was 10,515 boe per day.
• Brookfield Asset Management (BAMa). The company on Friday reported fourth-quarter earnings of 15 U.S. cents a share, on revenue of US$3.46 billion and declared dividend of 13 U.S. cents.
• CAE Inc. (CAE). The company said on Friday it won a contract from Skymark Airlines for Boeing 737-800 full-flight simulator. The contract brings the total number of FFS sold by the company to 16, in 2010.
• Fairfax Financial Holdings Ltd. (FFH). The company, which deals in property and casualty insurance and reinsurance, on Thursday reported fourth-quarter profit that plunged 77 percent on investment losses and said it will raise US$200 million through institutional investors.
• Husky Energy Inc. (HSE). John Lau, the CEO of Canada's second-largest oil producer and refiner, plans to step down and take leadership of the company's Asian business, which Husky has considered spinning off.
• Magna International Inc. (MGa). German competition authorities intend to scrutinise thoroughly the Canadian auto parts maker's planned purchase of the cabrio roof business of insolvent rival Karmann.
• MDS Inc. (MDS). The life sciences company said on Friday that it planned to buy back more than 40 percent of its outstanding shares as the Canadian company advances its plans to narrow its focus to nuclear imaging.
• Mega Brands Inc. (MB). The toymaker and nine affiliates filed a Chapter 15 proceeding in a Delaware bankruptcy court late on Thursday, court documents showed. The company said it started its Canadian proceeding on Feb. 12 to implement a balance sheet restructuring that would cut its debt by about US$290 million and annual interest expenses by about US$30 million.
• Potash Corp (POT) and Agrium Inc (AGU). Canpotex, the export arm of Canadian potash producers, said on Friday it has signed a deal to sell about 600,000 tonnes of potash to some Indian buyers at a delivered price of US$370 per tonne. The export consortium, which is jointly owned by Potash Corp, Mosaic and Agrium, said the deal was settled with a consortium of Indian buyers including Coromandel International Ltd and Tata Chemicals Ltd.
• Royal Bank of Canada (RY). Phillips, Hager & North, a unit of the bank, won top honors at the Canada Lipper Fund Awards 2010 late on Thursday, where it was named "Best Fund Group Overall".
• Silver Standard Resources Inc. (SSO). The company on Friday agreed to sell Silvertip project to Silvercorp Metals Inc for total consideration of $15 million, out of which up to $7.5 million is paid through shares of Silvercorp.
• Superior Plus Corp. (SPB). The company, whose services span from energy to specialty chemicals, reported a fourth-quarter profit that missed market expectations, hurt by lower demand, and cut its 2010 adjusted operating cash flow outlook.
ECONOMIC CALENDAR
08:30 Leading indicators for Jan: Prior 1.5% Expected 1.0%
08:30 Retail sales for Dec: Prior -0.3% Expected 0.5%
08:30 Retail ex-autos for Dec: Prior 0.0% Expected 0.4%
CORPORATE EVENTS
09:00 Russel Metals Inc. (RUS). Q4 earnings conference call
10:00 Keyera Facilities Income Fund (KEY_u). Q4 earnings conference call
11:00 Brookfield Asset Management (BAMa). Q4 earnings conference call
ANALYST RECOMMENDATION
• Atco Ltd (ACOx) price target raised to $55 from $53; rating outperform at Macquarie
• Birchcliff Energy (BIR) rating raised to outperform from market perform at Raymond James
• Inter Pipeline Fund (IPL_u) price target raised to $11.50 from $11; rating neutral at Macquarie
• Penn West Energy Trust (PWT_u) price target raised to $21 from $20; rating neutral at Macquarie
• Red Back Mining (RBI) price target raised to $22 from $20; rating buy at UBS
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
U.S. credit card rules could boost payday lending
Credit card rules that come into effect on Monday will squeeze subprime borrowers' access to credit, analysts say, which could give a lift to the shadow banking sector and payday lenders.
This second round of provisions from legislation known as the CARD act, signed into law in May, will significantly affect how card issuers earn money by restricting their ability to charge fees and raise rates, especially on existing balances.
That means major card companies such as Visa Inc and MasterCard Inc will increasingly focus on borrowers with clean payment histories, as they become less willing to bet on returns from risky borrowers. The refocusing could further drive people with spotty credit histories into the open arms of payday lenders -- which charge interest rates that can reach 400 percent on an annualized basis for short-term loans.
"Where does that segment (of borrowers) go for credit now? If they're using cards to manage cash flow from paycheck to paycheck, who steps in to meet that need? That could be the payday lenders," said Scott Valentin, analyst at FBR Capital Markets.
Payday lending companies such as Cash America International Inc and Advance America Cash Advance Centers Inc are increasingly filling a gap for middle- and low-income borrowers seeking an alternative to credit cards but not yet willing to pawn their family heirlooms.
Their earnings reflect the trend. Fort Worth, Texas-based Cash America last month reported that fourth-quarter profit more than doubled to US$33.7 million, after it wrote more cash advance loans and had a higher balance of pawn loans outstanding. Advance America on Wednesday said its fourth-quarter profit more than tripled to US$19.8 million, helped by its growing prepaid cards and online cash advance businesses.
They say they are attracting more customers that previously had relied on credit cards or bank lines.
"Over the last year or so we have definitely seen our customer demographics support the notion that a broader range of Americans are choosing the payday advance option," Jamie Fulmer, director of public affairs for Advance America in Spartanburg, South Carolina said.
Customers' average income has increased to about US$50,000 from US$41,000, and a significant portion of customers have a median household income over US$75,000, he said.
RISKY LENDING
Payday loans are short-term loans, typically over a two-week term and involve balances generally in the US$300 to US$500 range. The industry originates an estimated US$27 billion in annual loan income, according to the Center for Responsible Lending.
Bank regulators and consumer advocates have repeatedly warned about the traps of payday lending, namely extremely high interest rates and fees.
States have cobbled together restrictions on the industry, but nationwide legislation that aggressively clamps down on these rates has failed to materialize.
To be sure, payday loan companies have, like the credit card companies, suffered loan losses as U.S. unemployment levels hover close to 10 percent. They are also facing regulatory changes as states have curbed short-term lending.
A further increase in short-term lending from payday loan companies as a direct result of card regulation changes is likely to take time.
"People aren't going to jump off the credit card bus and go and get a small loan," said Henry Coffey, analyst at Sterne Agee. Using a credit card to pay for supermarket shopping, for example, is a very different experience to standing in line to cash a pay check at a shop on Main Street.
But many subprime borrowers may not have another choice.
Kenneth Clayton, vice president and general counsel for the American Bankers Association, said the new rules restrict major card companies' ability to charge based on customers' changing risk profile.
Inevitably, the big-name card companies will not extend as much credit to risky borrowers.
"There's always going to be an incentive for non-mainstream providers of credit," Clayton said.
-- By Elinor Comlay and Karey Wutkowski, Reuters.
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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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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Feb 18, 2010
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THURSDAY, FEBRUARY 18, 2010, CANADIAN EDITION
TOP NEWS
• Canada annual inflation jumps to near 2 pct
• Barrick posts Q4 profit, announces spinoff
• Nexen posts Q4 profit
• Penn West posts Q4 loss, cuts 2010 capex outlook
• Wal-Mart holiday sales fall, forecast light
BEFORE THE BELL
Toronto's main stock index may open higher on Thursday, extending gains for the seventh straight session, as Barrick Gold posts strong quarterly results, though weaker commodity prices may wipe off some gains. Canada's annual inflation rate in January jumped to 1.9 percent from 1.3 percent in December on higher gasoline and car prices, Statistics Canada said. Wall Street is set for a weaker open, ahead of unemployment and inflation data, as investors await corporate results from world's No. 3 PC maker Dell Inc. European shares rose paring early losses, led by industrial engineers and drugmakers, while Asian equities were a mix of small gains and losses. Oil was down trading around US$77 a barrel and gold steadied around US$1107 an ounce.
COMPANIES REPORTING RESULTS
• Atco Ltd. (ACOx). Expected to report Q4 earnings of $1.09 cents a share, according to Thomson Reuters I/B/E/S
• Boardwalk Real Estate Investment Trust (BEI_u). Expected to report Q4 earnings of 20 cents a share
• Canadian Utilities (CU). Expected to report Q4 earnings of 82 cents a share
• Inter Pipeline Fund (IPL_u). Expected to report Q4 earnings of 21 cents a share
• Keyera Facilities Income Fund (KEY_u). Expected to report Q4 earnings of 50 cents a share
• Russel Metals (RUS). Expected to report Q4 earnings of 18 cents a share
• Superior Plus Corp. (SPB). Expected to report Q4 earnings of 40 cents a share
STOCKS TO WATCH THIS MORNING
• Agnico-Eagle Mines (AEM). The company said on Wednesday its fourth-quarter profit more than doubled, as gold prices soared while production was boosted by the opening of three new mines.
• Barrick Gold (ABX). The world's largest gold miner said on Thursday that fourth-quarter operating profit more than doubled on the back of stronger gold prices and that it was spinning off its African assets. Separately, the company will push ahead with a lawsuit to break up Goldcorp's (G) acquisition of most of the El Morro project in Chile from New Gold (NGD), even though the transaction closed this week, a Barrick official said on Wednesday.
• Dundee Precious Metals Inc. (DPM). The company on Wednesday reported fourth-quarter earnings of 4 cents a share, on net revenue of $44.5 million.
• Fronteer Development Group Inc. (FRG). The company said a recent drill program, testing a new target concept, has further defined and extended high-grade gold mineralization at its unit Northumberland deposit in Nevada.
• Industrial Alliance Insurance and Financial Services Inc. (IAG). The company plans to raise $200 million through an issue of common and preferred shares.
• Kinross Gold Corp. (K). The miner of the precious metal on Wednesday reported better-than-expected fourth-quarter results on the rising price of gold, and reiterated its production outlook for 2010.
• Nexen Inc. (NXY). The independent oil exploration company said on Thursday it returned to profit in the fourth quarter as oil prices recovered from low-levels seen a year ago.
• Penn West Energy Trust (PWT_u). The conventional energy trust on Thursday posted a fourth-quarter loss, hurt by lower production, and cut its outlook on capital spending for 2010.
• Rare Earth Metals Inc. (RA). The company said exploration program has been delayed on Clay-Howells project pending talks with an independent First Nations Group.
• Suncor Energy (SU). The company said on Wednesday that distillate supply from its 135,000 barrel per day Edmonton refinery has been curtailed after a day-earlier incident cut hydrogen and steam production at the facility.
• Uranium One Inc. (UUU). The company said on Thursday it would raise $250 million through a bought deal financing and plans to use it for potential acquisitions and to finance operations and development projects.
• Western Potash Corp. (WPX). The company said on Wednesday it has identified hydrocarbon potential at Milestone and secures private land rights.
CORPORATE EVENTS
08:00 Kinross Gold (KGC). Q4 earnings conference call
08:30 Dundee Precious Metals Inc. (DPM). Q4 earnings conference call
09:00 Nexen (NXY). Q4 earnings conference call
09:30 Barrick Gold (ABX). Q4 earnings conference call
11:00 Agnico-Eagle Mines Ltd. (AEM). Q4 earnings conference call
11:00 Boardwalk Real Estate Investment Trust (BEI_u). Q4 earnings conference call
12:00 Penn West Energy Trust (PWE). Q4 earnings conference call
16:00 NovaGold Resources Inc. (NG). Q4 earnings conference call
16:30 Inter Pipeline Fund (IPL_u). Q4 earnings conference call
ANALYST RECOMMENDATION
• Black Diamond Group (BDI) rating cut to outperform from strong buy at Raymond James
• Loblaw Cos. (L) price target raised to $42 from $38; rating buy at UBS
• Rogers Communications (RCIb) price target raised to $39 from $36; rating buy at UBS
• Shore Gold (SGF) rating raised to outperform from sector perform at RBC
• Tonbridge Power (TBZ) price target cut to $7 from $8; rating outperform at Macquarie
• Westjet Airlines (WJA) price target raised to $18 from $15; keeps buy rating at Salman Partners
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
COLUMN - At least U.S. has Japan to fall back on
The bad news for holders of U.S. debt, in case you missed it, is that China has sold so many Treasuries that it is no longer America's leading lender.
The worse news is that there is a new creditor-in-chief, and it is Japan, an aging country with its own government debt bubble to contend with.
China sold about US$34 billion of Treasuries in December, taking its holdings to US$755 billion, while Japan increased its purchases and now is in the top spot of the Treasury Department's scroll of merit, with US$768 billion. China's holdings peaked in April, since when the trend has been gently downward.
From a demographic point of view, though, the United States making a long term borrowing plan based on access to Japanese funding is a bit like my daughter making a retirement plan that has me continuing to work when she stops at its centre.
Japan is a wonderful country with many strengths, but one salient feature of Japan is that it is aging, or should that be aging, deeply in debt and dependent upon very low rates to continue to make those debts manageable.
Japan's government debt to GDP ratio is 190 percent, as against 84 percent for the U.S. That huge debt, which has nearly quadrupled in the past 15 years, is made tenable because the Japanese are great savers and own the vast majority of their government's stock of debts, unlike Americans, who own instead the vast majority of stuffed animals made in China. Japanese debt is also manageable because market interest rates are so low -- just a 1.32 percent yield on 10-year government bonds.
Japan is getting old quickly and by 2020 will have an old age dependency ratio, the proportion of its population too old to work, approaching 50 percent. That will eventually spook global capital markets, driving up Japan's borrowing costs. At the same time the overall call for capital in Japan will rise, both to fund consumption by retirees and, in one way or another, to service debt.
That makes Japan a real risk for the United States as a source of funding. They will have their own fish to fry and lending to the U.S. will be well down the priority list.
Japan's growing stock of U.S. debt has to be viewed as temporary. This, in combination with questions about China's strategy towards the United States and its debt, will throw a considerable shadow over the Treasury market for the foreseeable future.
CHINA'S STRATEGY
There are, to be fair, lots of reasons why China's sale of Treasuries might not turn out to be that big of a deal. China may simply be rebalancing after it plunged heavily into U.S. short-term debt during the crisis, or the data may be hiding offshore purchases by China of Treasuries. And, to judge by action in the bond market, whatever selling China has been doing has not hurt the U.S.'s ability to fund itself at very cheap rates much at all. To top it off, there was strong overall global demand for U.S. assets.
There is also the fact that China and the United States need one another. Not only does China still depend upon U.S. consumption for its industrial base, it also, as a huge owner of Treasuries, stands to be among the biggest loser in any uncontrolled sell-off .
Still, and even with good will on both sides, the vendor financing arrangements between the U.S. and China cannot persist. Even as public debt spirals in the U.S. there is recognition that the economy had become too reliant on consumption and debt. China's old and valued client will be a bit less valuable going forward.
Worries about China's plans are not helped by calls by senior Chinese military officers last week to punish the U.S. for arms sales to Taiwan by selling some Treasuries in "retaliation."
And China itself has criticized the dollar's central role in the global economy and U.S. management of its own finances, raising suspicions that China, realizing that the good days are gone, is wondering how it can extricate itself from its central role in the Treasury market.
That extrication is likely to happen little by little rather than all of a sudden, but even so it will not take too much diversification by the Chinese to have a real impact on U.S. market interest rates.
Substantial and reliable long-term funding isn't likely to come from Japan either, meaning that the best hope for Treasury investors lies not abroad but in the United States.
A bet on U.S. Treasuries then is a bet not just on the U.S. economy but on the U.S. political process.
-- James Saft is a Reuters columnist. The opinions expressed are his own.
-- At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.
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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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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Feb 17, 2010
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WEDNESDAY, FEBRUARY 17, 2010, CANADIAN EDITION
TOP NEWS
• Rogers Communications posts Q4 profit, sets buyback
• Intact Financial reports Q4 profit; ups dividend
• AngloGold swings to Q4 profit, to battle costs
• Deere Q1 profit beats street
• Host Hotels Q4 FFO misses Wall Street view
BEFORE THE BELL
Toronto's main stock index may open higher on Wednesday on rising commodity prices. On the macro front, wholesale trade data is expected to rise half a percent in December, according to a Reuters poll. Wall Street is also set for a higher open, the day after it posted its biggest daily percentage gain in three months, as investors await data on the housing market and industrial production. European shares extended gains to hit a two-week high, as banking stocks rose further following forecast-beating results from BNP Paribas. Asian shares leapt to a three-week high, powered by financial and resource shares, while Hong Kong shares shrugged off China's latest move to temper robust lending. Oil rose towards US$78 a barrel, supported by weaker dollar, while gold was edged higher to trade around US$1125 an ounce.
COMPANIES REPORTING RESULTS
• Agnico-Eagle Mines Ltd. (AEM). Expected to report Q4 earnings of 21 U.S. cents a share, according to Thomson Reuters I/B/E/S
• IAMGOLD Corp. (IMG). Expected to report Q4 earnings of 15 U.S. cents a share
• Kinross Gold (K). Expected to report Q4 earnings of 16 U.S. cents a share
• Loblaw Cos (L). Expected to report Q4 earnings of 49 cents a share
• WestJet Airlines (WJA). Expected to report Q4 earnings of 5 cents a share
STOCKS TO WATCH THIS MORNING
• Aastra Technologies Ltd. (AAH). The company on Tuesday posted a tenfold increase in fourth-quarter profit, though its revenues dipped, as the business communications company kept a lid on expenses and cut its spending on research and development.
• Candente Copper Corp. (DNT). The company said it received commitments to sell $5 million units of the company through a private placement at 35 cents each.
• Cardiome Pharma Corp. (COM). The company said on Tuesday it received US$25 million in advance from an affiliate of U.S. drugmaker Merck & Co Inc under a credit facility granted in 2009.
• Intact Financial Corp. (IFC). The home and auto insurer on Wednesday posted a fourth-quarter profit, helped by strong underwriting performance in personal insurance, and increased quarterly dividend by about 6 percent.
• Novadaq Technologies Inc. (NDQ). The company on Wednesday said it would raise about $7 million though a private placement, which consists of one common share and one fifth of a warrant. The company also added that each unit will be sold for net proceeds of $2.43 each.
• Rogers Communications Inc. (RCIb). The company on Wednesday posted fourth-quarter profit, helped by cost control, improved churn and increased cash flow generation, and also raised its dividend by 10 percent and set a $1.5 billion stock buyback plan.
• Suncor Energy (SU). The company reported increased flaring at its 135,000 barrel per day refinery in Edmonton, Alberta as the plant returns to normal operations after a snag, according to a notice filed on a community information line late Tuesday.
• The Noranda Income Fund (NIF_u). The company on Tuesday reported a five fold drop in profit and said 2010 remain uncertain with the withdrawal of the stimulus measures in the developed economies and fiscal tightening in China.
• Tyhee Development Corp. (TDC). The company said on Tuesday it would raise up to $3.12 million through a private placement.
ECONOMIC CALENDAR
08:30 Wholesale trade for Dec: Prior 2.5% Expected 0.5%
CORPORATE EVENTS
08:00 Rogers Communications Inc. (RCIb). Q4 earnings conference call
09:00 First Uranium Corp. (FIU). Q3 earnings conference call
10:00 Intact Financial Corp. (IFC). Q4 earnings conference call
11:00 IAMGOLD Corp. (IMG). Q4 earnings conference call
11:00 Loblaw Companies (L). Q4 earnings conference call
11:00 WestJet Airlines (WJA) Q4 earnings conference call
ANALYST RECOMMENDATION
• Aastra Technologies (AAH) price target raised to $39 from $37; rating sector perform at RBC
• Fortress Paper (FTP) price target raised to $16.50 from $12.50; keeps outperform rating at Raymond James
• Katanga Mining (KAT) rating cut to neutral from buy at UBS
• Magma Energy (MXY) price target cut to $2.30 from $2.60; keeps outperform rating at Raymond James
• Petrominerales (PMG) target price raised to $27 from $22; rating neutral at Macquarie
• Transat AT (TRZb) price target cut to $25 from $26; rating outperform at Macquarie
• Twin Butte Energy (TBE) rating cut to market perform from outperform on valuation at Raymond James
• Vermilion Energy Trust (VET_u) price target raised by $2.50 to $40; rating outperform at Macquarie
• West Fraser Timber (WFT) price target raised to $34 from $30; rating sector perform at RBC
EXDIVIDEND
• Destiny Resource Services Corp. (DSC). Amount $0.325
• Home Capital Group Inc. (HCG). Amount $0.16
• Industrial Alliance Insurance and Financial Services Inc. (IAG). Amount $0.245
• Ritchie Bros. Auctioneers Inc. (RBA). Amount US$0.10
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Yara bets on low U.S. nat gas prices in Terra deal
Yara's US$4.1 billion acquisition of rival fertilizer producer Terra Industries is a move aimed at gaining U.S. market share, but it is also a big bet that U.S. natural gas prices will remain stable, or at least competitive, over the long term.
The deal gives Norway's Yara a large presence in the lucrative U.S. corn belt -- a huge market for nitrogen-based crop nutrients like ammonia, urea and UAN. And natural gas is the primary raw material used in the production of these fertilizers.
The United States outpaced Russia last year as the world's largest gas producer for the first time since 2001, largely due to the emergence of unconventional gas plays like the Marcellus shale in Appalachia and the Barnett shale in Texas.
U.S. natural gas reserves are up by a third since 2006, mainly due to the growth of unconventional gas production from shale gas, found in fine-grained sedimentary rock. Currently, estimated reserves are sufficient to supply the U.S. market for nearly 100 years at present rates.
Yara noted that this has led to "structural changes" in the U.S. energy markets, making the acquisition of Terra and its large U.S. manufacturing base more attractive. The deal also cements Yara's position as the world's largest producer of nitrogen-based fertilizers.
"With all the natural gas that has been found recently in the U.S., the expectation is essentially that natural gas prices should stay stable, or come down a bit," said Broadpoint AmTech analyst Edlain Rodriguez.
In any event, most analysts contend that in the near-term natural gas pricing in the U.S. will remain, at the very least, competitive with European pricing, giving U.S.-based producers an edge due to lower transportation costs.
NITROGEN MARKET
Nitrogen, phosphate and potash are the three main macro nutrients used in fertilizers across the globe. Nitrogen production is a highly fragmented at the global level and investors view consolidation in the sector as a positive.
Currently, about 50 percent of the nitrogen-based nutrients used in the North America are imported. While Agrium, CF Industries, Potash Corp, privately held Koch Industries and Terra account for more than 75 percent of domestic production in the region.
The Terra deal will make Yara the largest nitrogen player in North America, with a market share of about 30 percent. It could also prompt further consolidation in the sector.
"A stand-alone strategy looks inherently more challenged now in our view post the Yara-Terra combination," TD Newcrest analyst Paul D'Amico, said in a note to clients.
Yara's global ammonia market share will be about 8 percent versus 2 percent for the second largest competitor, while its production capacity for UAN, a mix of urea and ammonium nitrate, will be four times larger than its next largest competitor.
D'Amico argues that this could increase the likelihood that CF Industries engages with Agrium, but a deal between the two is still far from certain.
Calgary-based Agrium has been locked in a year-long battle to acquire U.S. rival CF, which itself only recently withdrew its hostile bid for Terra.
The three-way merger battle and a spate of other deals and rumors have kept investors glued to the typically staid fertilizer sector, which has seen shares soar amid the commodity boom and collapse during the economic slowdown.
INCREASING DEMAND
A sharp decline in fertilizer demand in 2009, is expected to be followed by a healthy rebound in 2010 and beyond, as farmers scramble to replenish soil nutrient levels.
Yara is betting on a strong rebound, and its acquisition of Terra could significantly boost its earnings if markets begin to tighten.
Moreover, while farmers can skip potash and phosphate applications for a year, nitrogen usage is non-discretionary for corn production and the United States is the world's largest corn grower.
Ammonia pricing in North America has already begun to climb ahead of the spring planting season. Some analysts expect prices to reach as high as US$450 a tonne, from the current US$370 levels.
"If our view of a gradually improving fertilizer market comes through, this aggressive expansion investment looks sure to pay off handsomely for (Yara's) long-term investors," Carnegie Securities analyst Henrik Sinding, said in a note to clients.
-- Euan Rocha, Reuters
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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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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Feb 16, 2010
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TUESDAY, FEBRUARY 16, 2010, CANADIAN EDITION
TOP NEWS
• Flaherty to announce mortgage rule changes
• Blackberry maker RIM warns of bandwidth crisis
•JPM strikes US$1.7 bln deal to buy RBS Sempra units
• Merck profit meets Q4 views, sees deal savings ahead
•Kraft Q4 profit up, sees long-term Cadbury boost
• First Uranium posts Q3 loss on higher costs, forex loss
BEFORE THE BELL
Toronto's main stock index may open higher on Tuesday on rising commodity prices. On the macro front, wholesale trade for December is expected up at 0.5 percent, compared with a rise of 2.5 percent the previous month. Wall Street is also set for a higher open as corporate earnings fueled investors' optimism. European shares were up, buoyed by stronger financial stocks after Barclays said it had started the year well after beating forecasts with 2009 profit of 11.6 billion pounds. Asian equities rose, but gains were limited by concerns over risk factors such as the impact of China's efforts to curb bank lending. Oil rose over US$75 per barrel, up more than US$1, responding to a euro struggling higher against the dollar and supported by tensions over pressure for more sanctions against Iran. Gold price rose to trade around US$1,112.45 an ounce.
COMPANIES REPORTING RESULTS
• Aastra Technologies Ltd. (AAH). Expected to report Q4 earnings of $1.01 a share, according to Thomson Reuters I/B/E/S.
STOCKS TO WATCH THIS MORNING
• Angle Energy Inc. (NGL). The company on Tuesday said its average production for 2009 was 7,528 boe/d and total proved and probable reserves of 20.0 mboe.
• Barrick Gold (ABX). The stock of the world's largest gold producer is set to rally if it returns to its historical trading pattern with shares of fellow miner Freeport McMoRan Copper & Gold, Barron's business newspaper said on Sunday.
• CanAlaska Uranium Ltd. (CVV). The company said on Monday it started a winter exploration joint venture with Mitsubishi Corp and have outlined a $20 million five-year program.
• Day4 Energy Inc. (DFE). The solar electric solutions provider said on Monday it signed a 10 MW frame agreement with a German company, SOLERA sunpower GmbH.
• First Uranium Corp. (FIU). The company on Tuesday posted a third-quarter loss, hurt by higher corporate expenses and a US$7.4 million foreign currency loss.
• Fortress Paper Ltd. (FTP). The company reported a 34 percent rise in fourth-quarter profit on Monday and said market for security papers continues to show strength.
• International Minerals Corp. (IMZ). The explorer's second-quarter profit rose 6 percent helped by net equity income from its Pallancata Mine of about US$7.6 million.
• Lundin Mining Corp. (LUN). The underground mining employees at the Neves-Corvo copper mine in Portugal commenced two-hour strikes at the beginning of each shift demanding 17 percent rise in salary. The company rejected the demand and said the amount of production that may be lost is currently being assessed.
• Mega Brands Inc. (MB). The Canadian toymaker is focusing on offering lower price points to win the post-recession U.S. consumer and expects to "definitely have" double-digit sales growth this year, an executive told Reuters on Monday.
• Nexen Inc. (NXY). Nomura Holdings Inc, Japan's largest brokerage, said on Monday it plans to buy the European natural gas and power trading businesses of Nexen, in a deal reportedly worth about US$55 million.
• Norsemont Mining Inc. (NOM). The mineral explorer on Friday extended its expiry date for the previously announced purchase warrants to December 31, 2010 from February 21.
• Orvana Minerals Corp. (ORV). The company's first-quarter profit fell 69 percent as its per ounce production cost doubled, and it said production at its El Valle Boinas mine in northern Spain is expected to restart in fiscal 2011.
• Research in Motion Ltd. (RIM). Taking aim at rivals like Apple Inc, the BlackBerry-maker said on Tuesday that smartphone manufacturers must start developing less bandwidth-guzzling products or risk choking already congested airwaves. Separately, the company on Tuesday introduced Blackberry Enterprise Server Express - free new server software that synchronizes Blackberry smartphones with Microsoft Exchange.
• Student Transportation Inc. (STB). The school bus transportation services provider on Tuesday posted second-quarter profit, partly helped by lower fuel costs across all of its regions.
• Thallion Pharmaceuticals Inc. (TLN). The company and LFB Biotechnologies on Tuesday agreed to develop and commercialize treatment for E. Coli infection and said it would is eligible to receive payments of about $150 million from LFB.
• West Fraser Timber Co. (WFT). The company on Friday reported a loss of 47 cents a share, on revenue of $647 million and expects 2010 to be a challenging year for it's lumber and panel operations.
ECONOMIC CALENDAR
08:30 Manufacturing sales for Dec: Prior 0.1% Expected 1.8%
CORPORATE EVENTS
11:30 West Fraser Timber Co. (WFT). Q4 earnings conference call
17:30 Aastra Technologies Inc. (AAH). Q4 earnings conference call
ANALYST RECOMMENDATION
• ARC Energy Trust (AET_u) price target raised to $22 from $21; keeps market perform rating at Raymond James
• Canadian REIT (REF_u) price target raised to $28.50 from $28; keeps market perform rating at Raymond James
• Crombie REIT (CRR_u) price target raised to $11 from $10.50; keeps market perform rating at Raymond James
• EQuinox Minerals (EQN) price target cut to $4.50 from $5; keeps market perform rating at Raymond James
• Pure Energy Services (PSV) coverage started with a rating of outperform with a target price of $3.50 Raymond James
• Softchoice (SO) price target raised to $9.50 from $9; keeps outperform rating at Raymond James
• West Energy (WTL) price target raised to $6 from $5.50; keeps outperform rating at Raymond James
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Miners talk tough but iron ore price doubling unlikely
Tough talk by the world's big iron ore miners will not win them the 100 percent annual price the spot market suggests, but an agreement, if reached, should outstrip the 40 percent analysts expect.
Iron ore giants BHP Billiton, Rio Tinto and Brazil's Vale will push steel mills to either accept one of the highest annual price hikes on record or take their chances in a spot market that has more than doubled in the past 12 months.
"There's no reason why the mining companies should feel a need to accept anything less," said James Wilson, a mining analyst for DJ Carmichael. "The alternative is for the mills to buy on the spot market, which is way up on this year's benchmark.
Vale, Rio Tinto and BHP Billiton are locked in talks with Asian steel mills to set the next annual benchmark price even as ore is increasingly being diverted into spot contracts.
BHP Billiton offered its clearest indication yet it was looking for a substantial increase in iron ore contract prices when chief executive Marius Kloppers repeatedly highlighted the near-100 percent gap between last year's benchmark and current forward prices.
Kloppers said on ABC's Inside Business programme, aired Sunday but recorded on Friday, that iron ore forward prices stood around 100 percent above benchmark prices, and demand from China had picked up from the global downturn faster than expected.
"I don't know what the price settlement will be when we get to that point. What I do know is that today's price is almost double last year's benchmark," he said.
Forward iron ore swaps are trading at around US$117 a tonne for 2010 on a cost, insurance, freight China basis, versus last year's US$60 free on board annual contracts.
Accounting for freight costs of around US$9, the market price for annual iron ore is about US$108 a tonne FOB, equivalent to a rise of about 80 percent and well above analysts' forecasts of an increase of the order of 30 to 40 percent.
A recent Reuters poll showed benchmark iron ore prices were set to rise by 30 percent for the 2010/2011 contract term.
"I am updating my steel model and iron ore contracts might surprise on the upside from my 40 percent outcome," ANZ's senior commodities analyst Mark Pervan said.
But he doubted contracted levels would rise on par with the spot market.
"Historically you never saw contract prices equal spot at the time of settlement but the spot market has become a lot more liquid so there is an argument that spot and contract prices should be closer."
Pervan added that shrinking margins for steel mills and difficulties in passing on higher costs would restrict their ability to pay higher prices.
"Although iron ore miners don't look at steel prices when setting prices, steel mills have to. Since late October spot iron ore prices have rallied 48 percent while rebar has risen just 12 percent, so even though current spot prices point to contract prices doubling, that may be too much for the mills to swallow."
"MEGAPHONE DIPLOMACY"
Japan's Nippon Steel and JFE said they were still in talks and would not comment on their intentions.
But a source closely involved in talks in Japan said BHP has insisted on a flexible pricing mechanism for years.
"Miners should certainly want to boost prices," the source said, but added that steel consumers would have to be willing to accept higher prices from the mills.
"They can't agree if they feel they can't sell expensive steel products under the current market conditions."
An industry official said Klopper's comments were a message to Chinese steel mills about the consequences of a repeat of last year's failure to agree prices.
Last year's talks with Chinese steelmakers ended in stalemate when the China Iron and Steel Association failed to negotiate a special China price for iron ore, and ultimately ended up with the same 33 percent discount as other Asian rivals.
"This was a bit of megaphone diplomacy -- something the Chinese are also good at," the industry official said.
"The message was to sign up to BHP's new benchmark, which might be a combination of spot iron and steel prices, or face spot."
-- Nick Trevethan and James Regan, Reuters
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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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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(Please note Canadian quotes are delayed 15 min)
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