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Anglo closes sale of Brazilian niobium, phosphates assets to China Molybdenum

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Anglo closes sale of Brazilian niobium, phosphates assets to China Molybdenum

TOP NEWS

Anglo closes US$1.5B sale of Brazilian niobium, phosphates assets to China Molybdenum

Anglo American Plc completed the sale of its niobium and phosphates businesses in Brazil for a total of US$1.7 billion in cash to China Molybdenum Co. Ltd. The consideration is comprised of a previously agreed US$1.5 billion in cash for the sale of Anglo's assets and an additional US$187 million of working capital and other adjustments.

Argentina court extends Barrick Gold's Veladero mine suspension

Based on the report submitted by mining police in Argentina's San Juan province, Judge Pablo Oritja ruled that Barrick Gold Corp.'s Veladero mine would remain suspended as the repairs were insufficient to reopen the mine, Reuters reported. The court extended the temporary suspension until the company completes additional work at the mine. Operations were suspended at Veladero on Sept. 15 following a cyanide leak.

Several mining ops remain suspended after South Australia storm

According to a BHP Billiton Group spokesperson, operations at the company's Olympic Dam remain suspended with no timeline yet confirmed for production to be restarted, Bloomberg News reported. Meanwhile, Arrium Ltd. could face costs of as much as A$40 million following South Australia's statewide power outage caused by storms, which forced suspensions across several operations in the state. Arrium's Whyalla steelworks and the mining of iron ore to feed the mill have been halted since the power failure on Sept. 28. The report also noted that OZ Minerals Ltd.'s Prominent Hill gold-copper mine also remains offline.

BASE METALS

* Glencore Plc said in an emailed statement that it is reviewing allegations by U.S. authorities about the decade-long involvement of its key business partner, Israeli billionaire Dan Gertler, in bribing government officials in the Democratic Republic of Congo, Bloomberg News wrote. Gertler's Fleurette Properties Ltd. holds a 31% interest in the Mutanda copper-cobalt mine in the DRC, while Glencore owns the majority 69% interest in the project.

* Codelco submitted a US$55 million plan to environmental regulators aimed at keeping the Salvador copper mine in Chile operating through 2021, Reuters reported.

* Rescue operations are ongoing to recover three workers trapped inside the Dudder lead-zinc mine in Lasbela, in Pakistan's Balochistan province, with the rescuers managing to reach 600 meters into the mine to create ventilation in it, Dawn reported. A lift carrying five workers — four Chinese engineers and one Pakistani electrician — fell 1 kilometer deep inside the mine on Sept. 24. Two Chinese engineers have managed to escape, but according to Chief Inspector Mines in Balochistan, Iftikhar Ahmed, there was a slim chance that the three remaining men have survived.

* Golden Cross Resources Ltd. sold its wholly owned Coppervale property at Molong in New South Wales, Australia, for A$368,000. The property was acquired by Hellsten SF Pty. Ltd., a company associated with Golden Cross Chairman Ken Hellsten.

* The board of Yunnan Tin Co. Ltd. approved a plan to apply for up to 3.1 billion Chinese yuan in credit lines from commercial banks.

PRECIOUS METALS

* In its first-ever ratings action for the company, Moody's assigned a corporate family rating of Ba1 and a probability of default rating of Ba1-PD to Polyus Gold International Ltd., the holding company of Russian PJSC Polyus Gold. The outlook on the ratings is negative.

* Xtract Resources Plc's US$17.5 million sale of the Manica gold project in Mozambique to Nexus Capital Ltd. and Mineral Technologies International Ltd. has lapsed. The company is in discussions with Mineral Technologies to amend the existing joint venture to mine the alluvial gold deposit.

* Bearing Resources Ltd. completed the sale of mineral assets in Canada and Mexico to Commander Resources Ltd. Commander Resources Ltd., in exchange for 12,000,000 common shares and C$15,000 in cash. The deal excludes Bearing's four fully owned properties in the Yukon.

* Silver Mines Ltd. will make a two-part, A$5 million payment to purchase the remaining 15% interest in the Bowdens silver project in New South Wales, Australia, from Kingsgate Consolidated Ltd.

BULK COMMODITIES

* Vale SA is planning to form a strategic partnership in fertilizers, as the company was unsuccessful in finding a partner or selling the segment in recent years, Reuters wrote. In a recent board meeting, no decision was made on the sale of Vale's fertilizer unit.

* South32 Ltd., which is determined to shed its "CrapCo" image, no longer sees itself as a spinoff of BHP Billiton's lower-quality assets, but as a unique mining house that is actually outperforming its former parent. South32, however, conceded that it needs to improve its safety record following four fatalities in the last financial year. "The one area I feel that we didn’t perform well at all as an organization was on safety," said Ricus Grimbeek, president and COO, Australia.

* Leaked documents obtained by Fairfax Media widened the alleged bribery scandal concerning Australian miner Sundance Resources Ltd. New evidence suggested that the company bribed the Republic of Congo's Mines and Geology Minister as well as the country's President, the Australian Financial Review reported.

* In an effort to streamline its corporate governance, POSCO Engineering & Construction Co. is seeking to lay off about 600 workers under a voluntary retirement scheme, which would account for more than half of its 1,000-man workforce, The Korea Times reported. The company will start accepting resignations from Oct. 4, according to company insiders.

* Fushun Special Steel, 35.22% owned by state-run and unlisted steelmaker Dongbei Special Steel Group Co. Ltd., said a court is reviewing an application from creditors for a bankruptcy restructuring of its parent as part of its business revival plan, Reuters reported.

* Thousands of protesters in Vietnam gathered at a steel plant run by a Formosa Plastics Group unit, demanding the company's exit from the country, more compensation and a better environmental cleanup, Reuters reported. In April, toxins released from the company's US$10.6 billion steel plant caused massive fish deaths along a 200-kilometer stretch of coastline.

* S&P Global Ratings downgraded the corporate credit rating on Compass Minerals International Inc. to BB from BB+, with a stable outlook. The firm also assigned BB+ issue-level rating and 2 recovery rating to the company's new US$450 million term loan due 2021.

* Fitch Ratings has maintained the rating watch evolving on Tata Steel Ltd.'s long-term issuer default rating, which is at BB, and the long-term issuer default rating of Tata Steel UK Holdings Ltd., which is at B.

* Exxaro Resources Ltd. completed the divestment of its iron ore assets in the Republic of the Congo, transferring the ownership of the Mayoko iron ore project to SAPRO SA.

* The board of United Co. RUSAL Plc approved the payment of an interim dividend for the first half of about 1.65 U.S. cents per common share, Kommersant reported. The payment of dividends is subject to approval by creditor banks.

* Cokal Ltd. plans to take its Bumi Barito Mineral, or BBM, coal project in Indonesia through to a pre-feasibility study after it received positive results from a recent scoping study.

* Despite sanctions due to North Korea's nuclear and missile tests, the country's coal exports to China reached a record high of 2.5 million tonnes in August. The coal shipments, the biggest since 1998 when the compilation of related data began, rose as North Korea slashed prices to boost its exports to its strongest ally.

* Kompania Weglowa SA and Mine Restructuring Co. signed an agreement under which the Jas-Mos coal mine owned by JSW will be transferred to the latter, Puls Biznesu reported.

* Separately, Puls Biznesu reported that the tender for the sale of JSW's Sosnica-Makoszowy coal mine in Poland received only one offer, according to the Mine Restructuring Co. The investor's name will be revealed on Oct. 3 and will be invited for negotiations, if the investor meets the formal requirements.

SPECIALTY

* Iluka Resources Ltd.'s takeover target Sierra Rutile Ltd. posted a 15% year-over-year increase in rutile production to 61,408 tonnes during the first half of 2016, driven by improvements to plant utilization and availability. The miner now expects to produce between 135,000 tonnes and 145,000 tonnes of rutile this year, up from previous expectations of 120,000 to 135,000 tonnes.

* ASX-listed Pilbara Minerals Ltd. has served a notice of dispute to fellow listed firm Mineral Resources Ltd. over the validity of its off-take notice related to the sale of lithium from the Pilgangoora project in Western Australia to General Lithium.

* Wolf Minerals Ltd., which is in talks with lenders for a standstill and restructuring of its £70 million term loan facility and additional funding for working capital, expects to reach a final binding agreement before Oct. 17. The company announced in July that it was in breach of a loan covenant under the senior debt facilities arranged to ramp-up the Drakelands tungsten open-pit mine in the U.K. to commercial production.

* Gemfields Plc 's emerald auction sold 3.3 million carats out of the 4.1 million carats offered, for total sales of US$10.7 million, averaging US$3.28 per carat. Meanwhile, the amethyst auction posted revenues of US$400,000, selling 11.6 million carats out of the 13.6 million offered for an average of 3.73 cents per carat.

* The board of Bacanora Minerals Ltd. rejected an offer from Rare Earth Minerals Plc to acquire the former for between 135 and 141 Rare Earth shares for each Bacanora share held. Rare Earth holds a 19.8% stake in Bacanora.

INDUSTRY NEWS

* Chinese newspaper reports have flagged a slate of debt defaults among state-owned mining companies this year — comprised of two steel producers, a coal miner and a nonferrous metals company — as an indicator that the government is becoming less willing to offer bailouts and may allow debt-laden mining companies to restructure their financial liabilities instead.

* Regina Lopez, the Philippines' Environment and Natural Resources secretary, said that some of the 20 mines facing suspension orders on the back of environmental violations may not have to halt operations if they manage to fix the issues, Reuters reported. Lopez was cited as saying that the mines will be given time to address the problems.

S&P Global Ratings and SNL Metals and Mining, an offering of S&P Global Market Intelligence, are both owned by S&P Global Inc.

The Daily Dose is updated as of 7 a.m. Hong Kong time, and scans news sources published in Chinese, English, Indonesian, Malay, Portuguese, Russian, Spanish, Thai and Ukrainian. Some external links may require a subscription.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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