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Negotiations between Goldcorp, Penasquito protesters continue

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


Negotiations between Goldcorp, Penasquito protesters continue

TOP NEWS

Goldcorp continues talks with Penasquito protesters

Goldcorp Inc. said negotiations with protesters blockading the Penasquito gold mine continue, while it remains unclear if access — or how much access — to the mine site has been regained. Hector Alvarado, a spokesman for Zacatecas Gov. Alejandro Tello, said workers could leave the mine, in response to questions from SNL Metals & Mining about the state of the blockade. Goldcorp spokeswoman Christine Marks, however, said via email that "the situation is dynamic," and the company "will provide an update when there is material news."

Agrium, PotashCorp to take shareholder vote on merger in November

Fertilizer producers Agrium Inc. and Potash Corp. of Saskatchewan Inc. plan to hold separate shareholder meetings in November for a vote on the merger of the two companies, Reuters reported. The deal requires two-thirds approval by shareholders of each company to proceed.

Gold majors investing in renewable energy

Barrick Gold Corp., IAMGOLD Corp., AurCrest Gold Inc., Goldcorp Inc., TMAC Resources Inc., Newmont Mining Corp. and Gold Fields Ltd. are all investing in renewable energy to provide power to their operations, Mining.com reported.

BASE METALS

* Strong winds in South Australia are hindering maintenance workers from fixing transmission towers, with restoration of the first damaged power circuit pushed back a day, The Australian Financial Review reported. The electricity provider, ElectraNet, told BHP Billiton Group it can expect power back at its Olympic Dam copper mine in at least five to six days.

* Chile's Second Environmental Tribunal ratified the fine of 850 million Chilean peso ordered in August 2015 by Chilean environmental regulator SMA against Antofagasta Plc-owned port operator Antofagasta Terminal Internacional SA over pollution and health-related risks, magazine Minería Chilena reported.

* Copper Mountain Mining Corp. produced 22 million pounds of copper, 8,170 ounces of gold and 81,540 ounces of silver during the third quarter from its namesake Copper Mountain mine in British Columbia.

* Vedomosti and Kommersant reported that UGMK (UMMC) will be the only zinc producer in Russia. It received permission to consolidate 100% of the shares of the Chelyabinsk Zinc Plant.

* A lawsuit filed by six Eritreans against Nevsun Resources Ltd. over forced labor at the company's Bisha zinc mine can proceed in British Columbia, but they would have to file separate cases, Reuters reported, citing a Canadian court. The miner called for the dismissal of the case, arguing that any lawsuit should be heard in Eritrea, but this was rejected by the court.

* Unionized workers downed tools at Amerigo Resources Ltd.'s Minera Valle Central copper operation in Chile, after the 216-member union decided to reject the company's final wage offer.

* Boliden AB agreed to sell its Noralf aluminum fluoride operations at the Odda zinc smelter in Norway to Italian firm Fluorsid SpA, for €12.5 million. The divestment is in line with Boliden's strategy of increasing its focus on core zinc operations at Odda, and expanding zinc output to 200,000 tonnes per annum from the second quarter of 2017.

PRECIOUS METALS

* Lowell Copper Ltd., Gold Mountain Mining Corp. and Anthem United Inc. completed their previously planned business combination to form JDL Gold Corp., a new company focused on gold and copper.

* The controlled shutdown of Goldcorp's Penasquito gold-silver mine implies a cost of 25% of the project's production, the company's vice president of Institutional Relations, Brent Bergeron, said in an interview with news agency Notimex. Penasquito has a production capacity of 800,000 ounces of gold per year, daily El Financiero reported.

* Mariana Resources Ltd. has entered a binding term sheet to acquire an 80% interest in Awalé Resources SARL, which focuses on gold projects in the Ivory Coast.

* Avanco Resources Ltd. has entered into an agreement with TSX-listed Jaguar Mining Inc. to earn up to 100% of the 137,000-hectare Gurupi gold project in northern Brazil. A scoping study to reassess the project’s scale and economics via a range of development scenarios has been initiated.

* The Papua New Guinea Mineral Resources Authority has rejected PNG Gold Corp.'s renewal application for two exploration licenses covering its Sehulea and Normanby gold projects in the country. The miner said it was surprised by the government's decision, as it has previously renewed the licenses without issues.

* Orinoco Gold Ltd. said that the first gold is on its way for refining and sale from its Cascavel gold mine in central Brazil.

* Spitfire Materials Ltd. has executed a conditional agreement to acquire the granted Western Australian gold exploration license E38/2869, known as the England gold project.

* Shares of gold miners listed at the Toronto Stock Exchange fell on the expectation that U.S. interest rates will go up this year, Reuters reported.

* Since the 50% devaluation of the ruble after 2014, Russian gold miners have been the most profitable and lowest cost in the world, but market valuations have not reflected this yet, according to Boris Yatsenko, head of metals and mining in Russia at EY.

* Coeur Mining Inc.'s third-quarter silver output totaled 3.5 million ounces while gold production came in at 84,871 ounces. The company also lifted its full-year 2016 production guidance to between 34.4 million and 37.0 million silver equivalent ounces.

* Alamos Gold Inc.'s environmental impact assessment for the initial phase of its La Yaqui gold project secured final approval from Mexico's federal environmental agency, SEMARNAT.

* South Africa's National Union of Mineworkers said one of its members died after succumbing to injuries, African News Agency reported. The Sibanye Gold Ltd. employee was assaulted Oct. 4 at the company's Cooke gold project.

BULK COMMODITIES

* Union workers at Metallurgical Corp. of China Ltd.'s Sierra Grande iron ore mine have ended their strike, which started Sept. 19 after the company rejected their demand for a 22% wage increase. Workers accepted the addition of 1,500 Argentinean pesos to their current salaries, which is part of the proposed 22% increase. The agreement will remain in force for the next six months, local daily ADN Rio Negro reported.

* Four people have died as a result of police fire in the Indian state of Jharkand, where local villagers were protesting NTPC Ltd.'s plans to open a new coal mine, Mining.com reported. The locals claim that the state-run power generator infringed forestry rights and failed to offer jobs and satisfactory compensation for their lands.

* Israel Chemicals Ltd. has terminated its potash investment project in Ethiopia due to the country's failure to provide the infrastructure and regulatory framework required for the project. The net value of the project was about US$170 million, as of June 30.

* Increased demand from Chinese steelmakers for iron ore and coal has prompted Australia to improve its price forecasts for the commodities by 10% for iron ore to US$48.50 per tonne and 16% for coking coal to US$99.40 per tonne, CNBC reported.

* Residents of Whitsunday in Queensland plan to argue in the Supreme Court in Brisbane this week that the state government has failed to protect the environment as it gave the go-ahead to Adani Enterprises Ltd. for its expansion of the Abbot Point coal terminal, the Australian Associated Press reported.

* Recently invalidated Usinas Siderúrgicas de Minas Gerais SA CEO Sergio Leite issued a statement to thank stakeholders for their support while he held office. The executive also said he would return to his previous post as Usiminas’ commercial vice president, Notícias de Mineração reported.

* Despite the recent rally in commodities prices, Anglo American Plc will push ahead with the proposed South African asset disposals as part of its business reorganization plan announced in February. The rebound in prices for iron ore, as well as coking and thermal coal, will enable the mining giant to get better prices for the assets, Bloomberg News reported, citing the company's deputy chairman of South African operations, Norman Mbazima.

* Tata Steel Ltd.'s hot metal and crude steel output rose 17% and 13% year over year, respectively, to 3.12 million tonnes and 2.82 million tonnes in its fiscal second quarter of 2017. The Indian steelmaker's salable steel output for the quarter increased by 11% to 2.73 million tonnes, while sales were slightly up on a yearly basis, to 2.62 million tonnes from 2.33 million tonnes. Separately, the steel major raised 10 billion Indian rupees through a private placement of 8.15% unsecured, nonconvertible debentures.

* Japanese aluminum buyers will be required to pay a premium of US$75 per tonne over the London Metal Exchange cash price for their shipments in the fourth quarter, Reuters reported. The new settlement will set the benchmark for Asian physical aluminum markets, and represents a 20% decrease from the previous quarterly per tonne premium of between US$90 and US$93.

* Workers ended a strike at Shougang Hierro Perú's operations after three weeks, following a wage increase, Metal Bulletin reported. The workers restarted activities at the iron ore operations after the agreement, General Manager Raúl Vera La Torre added.

SPECIALTY

* According to a report by BMI Research, the Chinese government is expected to ramp up rare earth element exports, in an effort to regain control over pricing policy, reversing its previous export-restrictive strategy, Mining Weekly reported.

INDUSTRY NEWS

* Market caps for the top 25 companies rose by an aggregate 10% on a quarterly basis as of the September quarter-end, and the same group saw their value improve 32% year on year, according to an SNL Metals & Mining research report. Debt reduction initiatives have played a central role in companies improving their standing among investors.

* The Philippine government will make a final decision on further mine suspensions by the end of this month, Bloomberg News reported, citing Environment Undersecretary Leo Jasareno. Officials are informing mining companies of proposed suspensions, giving them a week to respond and another week for the department to review their replies before reaching a final decision, Jasareno added.

* According to Reuters, Brazil's Ministry of Mines and Energy signed a cooperation agreement with the National Department of Mineral Production and the Geological Survey of Brazil to improve the environment for mining investment and related administrative procedures. The plan is to accelerate investment in 20,000 areas currently available for concession by the National Department, daily DCI Diário Comércio Indústria & Serviços reported, citing the secretary of Geology, Mining and Mineral Transformation, Vicente Lôbo.

The Daily Dose is updated as of 7 a.m. London 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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