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Alcoa misses on Q3'16 earnings, revenue forecasts

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

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

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

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


Alcoa misses on Q3'16 earnings, revenue forecasts

TOP NEWS

Alcoa misses on Q3'16 earnings, outlines unexpected aerospace headwinds

Alcoa Inc. just missed analyst forecasts for third-quarter revenue and earnings, and revised down revenue expectations for its Arconic business segment. The company reported US$5.2 billion in revenue during the quarter, down 6% from the corresponding quarter of 2015, while the net income was US$166 million, up fourfold from US$44 million in the third quarter of 2015.

Glencore to resume ops at Collinsville coal mine

Glencore Plc plans to resume full operations and hire more than 200 workers at its Collinsville coal joint venture in Queensland, Australia. The move comes amid growing demand from Southeast Asia for the mine's specific product.

Amplats selling mining rights at Amandelbult to Northam Platinum for 1B rand

Anglo American Plc unit Anglo American Platinum Ltd. said that its Rustenburg Platinum Mines Ltd. business agreed to sell certain mining rights within the Amandelbult property to Northam Platinum Ltd. for 1 billion South African rand. The acquisition will extend the economic mine life of Northam's nearby Zondereinde platinum mine to more than 30 years.

DIVERSIFIED

* Rio Tinto priced the cash tender offer to buy back about US$1.5 billion of its 2019, 2020, 2021 and 2022 notes. The settlement will occur Oct. 12.

* Vale SA's CEO, Murilo Ferreira, will leave the Brazilian iron ore producer in May 2017 amid a change in Brazil's political scenario, SteelOrbis wrote, citing media reports.

BASE METALS

* Botswana's BCL Ltd. is backing out of a deal it made in 2014 to acquire PJSC MMC Norilsk Nickel's 50% stake in the Nkomati nickel joint venture in South Africa due to its inability to afford the US$279 million price tag, Bloomberg News reported, citing Khaulani Fichani, chairman of the state-owned company.

* Yunnan Tin Co. Ltd. expects to swing to a net profit of between 40 million and 60 million Chinese yuan in the third quarter, from a net loss of 87.7 million yuan posted a year ago, driven by a rally in nonferrous metals prices and its acquisition of indium-tin miner Yunnan Hualian Zn-In Shares Co.

* Jilin Jien Nickel Industry Co. Ltd.'s overdue debts amounted to 3.73 billion yuan as of Oct. 10, more than double the 1.63 billion yuan recorded as of Sept. 22. The company said it failed to raise funds to complete a loan replacement plan during the period, which resulted in the steep increase in overdue debts.

* Global Copper Group Inc. staked an additional five mineral claims adjacent to and surrounding its recently acquired claims in Ontario for C$14,000 and 150,000 common shares. The company now holds 712 hectares in Ontario's Cobalt region.

* A worker died in an accident at Capstone Mining Corp.'s Cozamin copper operation in Mexico. The miner was fatally injured after getting struck by a piece of mobile equipment in transit in the Mala Noche Footwall Zone area. Operations at the site were temporarily suspended.

PRECIOUS METALS

* Endeavour Silver Corp.'s silver equivalent production in the third quarter totaled 2.4 million ounces, an 18% drop year over year. Silver output fell 29% to 1.3 million ounces while gold production was down 6% to 14,364 ounces, both on a yearly basis. However, CEO Bradford Cooke said that production exceeded expectations for the third quarter and the company is set to achieve its "recently raised production guidance for 2016".

* Unionized workers in Mali will go on a five-day strike starting Oct. 24 at mines belonging to gold producers including Resolute Mining Ltd. and Robex Resources Inc., alleging victimization by employers over their affiliation with a union called Secnami, Bloomberg News reported, citing Mahamadou Konte, a spokesman for the National Section of Mines and Industries. The union is also in dispute with Randgold Resources Ltd. over unpaid productivity bonuses, Konte added.

* Fitch Ratings revised its outlook on Polyus Gold International Ltd.'s long-term issuer default rating to positive from negative, while affirming it at BB-. The ratings agency also affirmed the short-term issuer default rating at B and the senior unsecured rating of the existing senior unsecured guaranteed notes at BB-.

* According to SolGold Plc Chairman Nicholas Mather, the company has attracted numerous other major mining companies, including BHP Billiton Group and Newcrest Mining Ltd. for an investment in the gold junior, The Australian Financial Review wrote.

* Impala Platinum Ltd. produced its 50 millionth ounce of platinum after 47 years of operations, Mining Weekly reported. The output is equivalent to 1,555 tonnes of platinum and is worth some 750 billion rand at current market prices.

* Banro Corp. achieved record gold output of 53,377 ounces in the third quarter, pushing total production in the first nine months of this year to 147,242 ounces. This means the company is on track to meet its full-year production guidance.

* Bluebird Merchant Ventures Ltd. received an unsolicited offer by an unnamed company, which is seeking to acquire a controlling stake at a premium to the current share price. Bluebird said its board will engage with the tendering company but added that the talks are at a preliminary stage. Bluebird holds a controlling stake in the Batangas gold-copper project in the Philippines.

* Several banks involved in a gold price fixing lawsuit including Bank of Nova Scotia, Barclays PLC, HSBC Holdings PLC, Societe Generale, and Deutsche Bank will be required to turn over internal emails and other correspondence spanning several years as the case moves ahead, said Daniel Brockett, a New York-based lawyer who is spearheading the U.S. lawsuit, the Financial Post reported.

* Construction has started at Hummingbird Resources Plc's Yanfolila gold project in Mali, with first gold pour expected by the end of 2017, targeting an output of 132,000 ounces in the first year.

* The Australian Securities & Investments Commission ordered the sale of 22,901,234 Sovereign Gold Co. Ltd. shares, or 1.62% of the company's issued capital, after finding that major shareholder GTT Ventures Pty. Ltd. contravened the takeovers threshold in relation to Sovereign Gold, and that former substantial shareholder Hudson Resources Ltd. collaborated with GTT.

* Intermin Resources Ltd.'s board approved the stage-one development of the open-pit Teal gold mine at its Binduli North property in Western Australia. The company added that all statutory approvals and full funding are in place.

* Despite Indonesia's revision of its mining laws, Lion Selection Group Ltd. is investing in One Asia Resources Ltd.'s 2.8 million-ounce Awak Mas gold project.

* Chalice Gold Mines Ltd. entered into a binding option and farm-in terms sheet to acquire Globex Mining Enterprises Inc.'s full interest in the Nordeau gold project in Quebec's Abitibi region.

* ABM Resources NL started the divestment process for its Bonanza gold property in Australia's Northern Territory, after receiving several "unsolicited expressions of interest."

* The Association of Mining and Exploration Companies warned the gold mining industry that the issue of possible royalty hikes is still very much alive.

* Seabridge Gold Inc. said that the government of British Columbia granted the necessary permit to develop an exploration adit into the large Deep Kerr deposit at the KSM gold-copper project.

BULK COMMODITIES

* Yanzhou Coal Mining Co. Ltd. has proposed closing its Beisu coal mine in China's Shandong province and cutting 1 million tonnes from the country's excess coal capacity, in line with the government's efforts to curb overcapacity in certain sectors.

* In a note in which S&P Global Ratings affirmed its junk-grade CCC/C rating on the miner Ferrexpo Plc, with a negative outlook, analyst Elad Jelasko wrote that the recent high iron ore prices had benefited the company, but a sustained fall in the price of the commodity below US$45 per ton put the group at high risk of default or debt restructure.

* The CFMEU confirmed the first case of black lung disease in an Australian open cut coal mine, at BHP Billiton's 50%-owned Goonyella Riverside mine in Central Queensland's Bowen Basin.

* Anglo American was granted an operating license from Brazil's Minas Gerais state environmental council for the next phase of its Minas Rio iron ore operation in the country, Metal Bulletin reported.

* Russian steelmaker OJSC Novolipetsk Steel is targeting a 20% increase in construction steel sales in 2016 through boosting exports, Metal Bulletin reported, citing CFO Grigoriy Fedorishin.

* The Australian anti-dumping commission initiated an exemption inquiry into anti-dumping measures against imports of stainless steel sinks from China, Metal Bulletin wrote.

* China's Xinxing Ductile Iron Pipes Co. on Oct. 4 started nickel pig iron production at Obi Island in Indonesia's North Maluku province, Metal Bulletin reported.

* Zamia Metals Ltd. signed a deal to acquire Kirkham International Pte. Ltd., which owns a 4,798-hectare mining permit for a coal project in Central Kalimantan, Indonesia, for A$24.3 million in shares.

* Following the surge in coking coal prices after supply cuts in China, Jindal Steel & Power Ltd. restarted its mines in Mozambique on Oct. 1, Mint reported.

* While India's domestic steel industry may be protected from a price decline due to increasing local demand, the sharp jump in exports makes Indian steel producers "vulnerable" to global price fluctuations, Mint wrote.

* Prairie Mining Ltd. acquired the Debiensko coking coal project in southern Poland through the purchase of 100% of the shares in New World Resources Plc local subsidiary NWR KARBONIA SA for an upfront cash consideration of €500,000 and deferred cash consideration of €1.5 million.

* Savannah Resources Plc entered into a new consortium agreement with Rio Tinto covering the Jangamo heavy mineral sands project in Mozambique that will allow operations at the project to start immediately.

* Fitch Ratings said that Noble Group Ltd.'s disposal of its Noble America Energy Solutions unit will strengthen the company's liquidity position, but will not affect its ratings as the sale has been factored into its current ratings.

SPECIALTY

* Rio Tinto-backed Energy Resources of Australia Ltd. produced 666 tonnes of U3O8 in the September quarter, representing a 46% increase on a yearly basis.

* Lucapa Diamond Co. Ltd. produced a record 8,853 carats from its Lulo diamond operations in Angola during the September quarter, reflecting a 154% year-over-year increase.

* PJSC ALROSA is on track to sell 37 million carats of diamonds in 2016, up from 30 million last year, while net earnings are expected to jump "two to three times" from last year's total of 32.19 billion Russian rubles, President Andrey Zharkov said.

* A rare 8.01-carat "fancy vivid blue" diamond will be displayed this week in London ahead of a November auction at Sotheby's, where it is expected to fetch up to US$25 million, Reuters reported.

S&P Global Ratings and S&P Global Market Intelligence are 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.


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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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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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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