All posts by hlancey@bloomberg.net

BHP Investors See Anglo American Within Reach as Talks Begin

Featured, South Africa

Shareholders in BHP Group told Bloomberg that they see the world’s largest miner moving one step closer to a $49 billion takeover of Anglo American Plc after Anglo rejected a third approach but agreed to talks and granted its suitor an extra week, to May 29, to commit to a binding bid.

As a deadline approached on May 22, BHP again sweetened its all-share proposal but stopped short of altering a structure that would oblige the target to spin off its South African iron ore and platinum businesses before the remainder is bought up.

“Anglo is now showing signs of capitulation with the extension,” said Prasad Patkar, Head of Qualitative Investments at Platypus Asset Management in Sydney, which owns BHP stock. “At a price, Anglo is a seller, and at any price, BHP is a buyer. So I think that deal will get done.”

The two sides are now closer in their view on the valuation, according to people familiar with the matter. But the complexity of BHP’s plan remains a key sticking point in a blockbuster deal to create the world’s biggest copper miner, investors pointed out.

“I would argue with the one-week extension, there is greater likelihood of a deal getting across the line as Anglo’s Board are finally talking,” said Ben Cleary, Portfolio Manager at Tribeca Investment Partners.

The focus now is on whether BHP’s executives can use the coming week to convince Anglo’s Board and its shareholders that they can get the deal to the finish line, without excessive regulatory or social turbulence. That could include making employment or other commitments in South Africa to ease concerns there.

“It’s clear that Anglo must accept BHP’s much-improved offer,” said Tim Elliott, who manages almost $2 billion across Regal Funds Management Pty’s global resources funds, including BHP and Anglo shares. “Not only do Anglo shareholders now receive a strong premium, but they receive BHP shares that are deeply undervalued and deliver ongoing exposure to many of the highest quality mines in the world, as well as substantial synergies from the combined group.”

“While there may be a degree of value leakage regarding the listed South African assets, Anglo’s own plan involves similar value leakage through the sale of high quality coking coal mines at what no-doubt will be a deep discount to fundamental value based on coal transactions in recent years,” Elliott added.

Market moves still suggest lingering investor skepticism around the latest offer. At current prices, May 22’s informal approach from BHP values Anglo at roughly £30.24 ($38.48) a share, while Anglo’s stock closed on May 22 at just under £27 in London.

“We do understand the strategic rationale and we think even at the revised price overnight, there’s potentially maybe even a little bit more wiggle room for them to negotiate,” said Dominic Mlcek, Portfolio Manager at Infinity Asset Management Pty. “We wouldn’t be displeased with them getting it at or a little bit above the current offer.”

But even if investors believe a deal is now more likely to succeed, it doesn’t mean they necessarily support it. BHP shares in Sydney were down around 3% in afternoon trade at A$44.84.

“We’re not happy about the deal, we’re not happy about the price,” said Patkar from Platypus Asset Management. “Even the price is almost a secondary thing – the size of the deal and the complications that are associated with trying to extract value out of something as big as this is. History is against these guys.”

Under the latest proposal, Anglo holders would get 0.8860 BHP shares for each ordinary share they own. Anglo holders would own about 17.8% of the combined group after completion and they would get two seats on the Board of Directors.

Unigel Creditors Approve Restructure, Bankruptcy Avoided

Ammonia, Brazil, Featured, Urea

Unigel, the struggling Brazilian chemical and fertilizer maker, obtained approval from a majority of creditors, including Pacific Investment Management Co. (PIMCO), for its out-of-court restructuring plan, according to Bloomberg, citing people familiar with the matter. Unigel didn’t immediately reply to a request for comment.

Holders of more than 50% of its debt backed the proposal, according to the people, who asked not to be identified because they are not authorized to speak about it. The company had until May 20 to gather support from more than 50% of creditors and avoid a bankruptcy filing (GM Feb. 23, p. 31).

Unigel skipped the payment of coupons on its dollar and Brazilian real-denominated notes amid plummeting earnings. Losses piled up after lower prices of urea and ammonia pressured its operations, leading it to breach covenants on its bonds, which include maintaining debt levels low enough relative to a measure of earnings.

The plan, first presented in February, originally had the backing of PIMCO, DoubleLine Capital, Amundi SA, Banco BTG Pactual SA’s asset-management unit, Moneda, Verde Asset Management, and Vontobel Asset Management.

Only certain financial creditors will have their claims restructured under the plan, Unigel said earlier this year. The proposal aims at restructuring about 3.9 billion reais ($763 million) in existing debt.

The company was founded by Henri Slezynger and is one of the main fertilizer makers in an economy that is 25% agribusiness. The family, which owns Unigel through a holding company, agreed to give up its controlling stake as part of the restructuring.

Western Potash Temporarily Suspends Operations at Milestone Project

Canada, Featured, Potash, Saskatchewan, Vancouver

Vancouver-based Western Resources Corp. on May 21 reported that its Board of Directors on May 17 decided to temporarily suspend operations at wholly-owned subsidiary Western Potash Corp.’s Milestone Phase I Project in Saskatchewan, so that the company can focus its efforts on discussions of additional project financing.

The company said the project is approximately 93% complete in the existing plan. Construction of the process plant has been completed and most of the equipment has been dry commissioned. Management expects that two new horizontal caverns will be added, which the company and Western Potash believe will bring the project to initial production stage.

Western Potash’s mining team, which is developing a new mining plan, is actively working to optimize that plan, which will allow work on the new caverns to begin soon after financing is secured. Milestone Potash Phase 1’s anticipated initial production is 146,000 mt/y.

“It’s unfortunate that the project’s startup has been further delayed but we believe that this suspension is necessary, prudent, and in the best interests of the company and Western Potash Corp.,” said Western Potash CEO and President Bill Xue.

“We remain committed to completing this exciting project, which is nearing initial production stage,” Xue added. “We are optimistic that despite our current challenges, and those we have faced in the past that were met and overcome, our efforts here to secure business and financial partners, who will work together with the company to complete the project, will be successful.”

LSB Inks Low-Carbon ANS Agreement with Freeport

Clean Ammonia, Low-Carbon, Nitrogen, U.S.

LSB Industries announced on May 22 that it has entered into an agreement to supply up to 150,000 st/y of low-carbon ammonium nitrate solution (ANS) to Freeport Minerals Corp., Phoenix, Ariz., which plans to use the ANS for its US copper mining operations.

LSB will supply the ANS from its El Dorado, Ark., facility for five years, commencing on Jan. 1, 2025, with a phasing in of the contracted volumes. LSB said its low carbon products stem from the carbon capture and sequestration project with partner Lapis Energy (GM April 29, 2022), who will capture and permanently sequester more than 450,000 mt/y of CO2 from El Dorado’s ammonia production.

“This important agreement validates our belief that our industrial and mining customers will identify the low carbon nitrogen products that we plan to produce as an important part of their decarbonization journeys and value them accordingly,” said Mark Behrman, LSB President and CEO. “We view this contract with Freeport as a major step towards attaining our vision of becoming a leader in the global energy transition and look forward to partnering with them as a strategic supplier as they advance toward their net zero aspiration.”

LSB said the carbon sequestration at El Dorado is expected to result in more than 375,000 mt of low carbon ammonia that the company can sell or upgrade to other low carbon nitrogen products, such as ANS. The project is expected to commence operations in 2026, pending approval by the US EPA of LSB’s and Lapis’ Class VI permit application, which the companies expect to receive in the second half of 2025.

Truterra Carbon Program Marks Three-Year Progress

Clean Ammonia, Low-Carbon, U.S.

Sustainability solutions provider Truterra LLC, Arden Hills, Minn., announced on May 21 that its carbon program has paid more than $21 million to farmers for the sequestration and reduction of more than 1.1 million mt of carbon in its first three years.

Truterra, a subsidiary of Land O’Lakes, said its carbon program has also seen significant growth in total acres enrolled, which increased 99% from 2022 to 2023, and 151% from 2021 to 2022. Farmer participation also increased 58% from 2022 to 2023. The carbon program is delivered through Truterra’s network of local ag retail advisors, who work directly with farmers.

“Our carbon program is gaining momentum as a leader among farmers and retailers. Our differentiated approach matches agronomics with economics to help farmers make sustainable practice changes,” said Truterra President Jamie Leifker. “What’s more, these carbon assets could help organizations with sustainability goals who choose to make agriculture part of their toolkit of solutions.”

Nutrien Restarts Rocanville Production after Fatality

Canada, News Briefs, Potash, Saskatchewan

Nutrien Ltd. said it was planning to resume production on May 22 at its Rocanville potash mine in Saskatchewan after the mine was temporarily shut down following the death of a worker on May 19.

Nutrien said authorities are conducting investigations into the accident, which took place at the railcar-loading facility, and the company is conducting its own investigation and is cooperating with Saskatchewan’s Ministry of Labour Relations and Workplace Safety.

“Our current focus is on ensuring we have support services available to all those involved,” the company said in a statement, adding that it was “unlikely” it would have “further details until the completion of internal and external investigations.”

Rocanville is the largest of Nutrien’s six potash mines in Saskatchewan, with a nameplate capacity of 6.5 million mt/y.

The United Steelworkers union (USW), which represents 650 Rocanville employees, also issued a statement. “Our community is in mourning over this tragic incident at our mine site and our thoughts go out to the family, friends, and our union family who are deeply impacted,” said Derek Palmer, President of USW Local 7916.

FCA Members Approve Merger with Gold-Eagle

News Briefs, U.S.

The Boards of Directors of Farmers Coop Association (FCA) and Gold-Eagle Cooperative (GEC), two regional co-ops with agronomy, grain, energy, and feed businesses in Iowa and southern Minnesota, announced on May 17 that FCA members have approved a merger proposal whereby Gold-Eagle will acquire the assets and liabilities of FCA.

FCA members voted 95% in favor of the merger, which will take effect on July 1, 2024, with the merged company operating under the Gold-Eagle Cooperative name. Gold-Eagle’s Board of Directors will expand to include two voting directors and one association from FCA’s board, for a total of 11 directors and two associates.

Chris Boshart, General Manager of Gold-Eagle, will oversee the combined organization. Randy Broesder, FCA’s General Manager, will help ease the transition in the coming weeks before his retirement at the end of June.

“Gold-Eagle looks forward to welcoming the members and employees of FCA into the fold and wish to thank the FCA membership for the trust placed in GEC by voting in favor the merger,” GEC said in a statement. “Gold-Eagle is excited to bring on FCA’s businesses and locations to streamline processes, cut costs, and better utilize resources to ultimately benefit the farmer patrons.”

Founded in 1916, FCA operates four agronomy, grain, energy, and feed locations in Iowa and southern Minnesota. Gold-Eagle was formed in 1908 and currently has 16 agronomy, grain, feed, and bulk fuel locations in north-central Iowa.

UAN Spill Goes to AG for Enhanced Enforcement

News Briefs, U.S.

Iowa’s Environmental Protection Commission (EPC) voted unanimously on May 22 to refer a March UAN spill (GM March 29, p. 29; March 15, p. 1) to the Iowa Attorney General for enhanced enforcement, according to reports in the Iowa Capital Dispatch. DNR’s own administrative fines are capped at $10,000, but the Attorney General can seek more.

NEW Cooperative on March 11 notified the DNR of the release from its Red Oak, Iowa, facility. The cooperative, which said it worked quickly to mitigate the damage, did not challenge the Iowa Department of Nature Resources (DNR) referral to the EPC (GM May 10, p. 30), according to the Dispatch, which also reported that an assistant attorney general indicated the office would pursue the case.

The product was discharged into a drainage ditch, then into the East Nishnabotna River. The latest information is that a valve on a clogged fertilizer line was left open over the weekend. The line then became unclogged and released some 265,000 gallons of UAN-32, which killed almost all the fish and aquatic creatures downstream for about 60 miles.

DNR described the spill as one of the worst river contamination incidents in the state’s history, noting that it was deadly to aquatic life until it reached the Missouri River and was diluted by the larger water flow.

Chemtrade Upbeat on 1Q Results, Full-Year Outlook

Canada, Earnings, News Briefs

Toronto-based Chemtrade Logistics Income Fund reported first-quarter net earnings of $42 million, down 47.2% from the year-ago $79.5 million. Adjusted EBITDA was off 16.5%, to $109.9 million from $131.7 million, while revenue was down 11.2%, to $418.2 million from $471.2 million.

“We started the new year on great footing with respect to both our operational performance and our financial performance,” said President and CEO Scott Rook. “Although our financial results this quarter were below the record first-quarter results we delivered in 2023, we believe that Chemtrade remains very well-positioned for continued success moving forward, with our diversified portfolio offering a compelling combination of defensiveness and growth.”

He added that first-quarter adjusted EBITDA was above internal expectations, with strong execution in both operating segments helping to support profitability. Based on its first-quarter performance and improved outlook for the balance of 2024, Rook said the company now expects adjusted EBITDA for the full year to be at the higher end of the previous guidance of $395-$435 million.

“Achieving the higher end of our guidance range for adjusted EBITDA in 2024 would mean that we’ve had three consecutive years of adjusted EBITDA being significantly above historic levels, which reaffirms the step change in our business,” Rook said. “With the biennial maintenance turnaround at our North Vancouver chlor-alkali facility having been successfully executed in the second quarter of 2024 and with caustic soda index pricing now seemingly on an upward trajectory, amongst other factors, we continue to expect that Chemtrade will generate stronger adjusted EBITDA in the second half of 2024 than in the first half of the year.”

Rook said the construction on the expansion and quality upgrade project at the $60-$65 million Cairo, Ohio, ultrapure sulfuric acid facility is nearing completion and the company looks forward to commissioning the upgraded and expanded facility in the second half, with commercial ramp-up in 2025. Chemtrade said the product will meet the quality requirements for the next generation of semiconductor nodes, and the plant will further bolster the company’s position as the top North American supplier of ultrapure sulfuric acid to the semiconductor industry.

Chemtrade said the demand outlook for ultrapure acid remains strong over the medium- and long-term, supported by the semiconductor industry production capacity expansion in North America. It added that regen acid continues to experience strong demand and the company maintains an optimistic near-term outlook for the product.

Chemtrade said 2023 was a strong year in merchant acid and it expects a more normal year in 2024. It said risk-sharing agreements with suppliers and customers are anticipated to help mitigate any potential pricing and input cost movements.

A proposed joint venture ultrapure project in Casa Grande, Ariz., remains on hold until it can be assured the project will generate an acceptable level of return. Rook said the company is also undertaking a number of smaller projects in the Water Chemicals business, given the strategic, high-return growth opportunities in that area. This includes expanding manufacturing capabilities for higher growth specialized products.

In 2024, Chemtrade plans to invest $60-$90 million in growth capital expenditures. This includes approximately $40 million for the ultrapure business, principally at Cairo, with the remainder for Water Chemicals and other organic growth projects.

Rook said Chemtrade is also looking to supplement organic growth initiatives with M&A, should it identify an opportunity that fits strategically within its portfolio and has synergistic value. It is targeting acquisitions with annual adjusted EBITDA of between $10-$50 million.

SQM Swings to 1Q Loss on Lower Lithium Prices

Earnings, News Briefs

SQM swung to a first-quarter net loss due to “significantly lower” prices of lithium and a $1.1 billion tax revision. The company reported a net loss of $870 million on revenues of $1.08 billion compared to the year-ago net income of $749.9 million and $2.26 billion, respectively. Adjusted EBITDA was $403.6 million, down from $1.09 billion.

The net loss far exceeded analyst estimates (Bloomberg Consensus) for a loss of $249.5 million. Global lithium producers have had a difficult earnings season for a first quarter that saw prices for the metal plunge to three-year lows. However, SQM lithium sales volumes rose 34% year-over-year.

SQM’s average sales price of lithium dropped 75% year-over-year in the first quarter, to almost $12,600/mt. Still, SQM is optimistic about longer term consumption of the battery ingredient, estimating global demand will expand this year by 20% to surpass 1.1 million mt. The low-cost producer is plowing ahead with plans to expand capacity in an effort to increase lithium sales guidance to 200,000 mt this year. It expects total capital expenditure of $1.3 billion in 2024.

Setting aside the tax adjustment, SQM said its first-quarter net income was $228.1 million, down about 70% from a year earlier.

“We are pleased with the positive year-on-year growth in sales volumes across all of our major businesses,” said CEO Ricardo Ramos. “During the first quarter of 2024, we delivered record-high quarterly sales volumes in the iodine business, almost 9% higher when compared to the same period last year.”

“Sales volumes in our specialty nutrition and potassium business lines were approximately 20% higher year-on-year, while lithium sales volumes were over 30% higher during the first quarter of 2024 compared to the same period last year,” Ramos continued. “This growth was offset by lower year-on-year realized average sales prices in these business lines as a result of lower market prices during the first quarter of 2024.”

Specialty Plant Nutrition volumes were up 21%, to 204,000 mt from the year-ago 168,100 mt, while revenues were off 6%, to $207.8 million from $220.9 million. Average sales prices were down 22.5% year-over-year. Sales volumes for potassium nitrate-based products were up 34%, to 118,600 mt from 88,800 mt.

SQM said it saw positive trends in the potassium nitrate business during the initial months of this year, characterized by robust demand growth and stable prices. It expects demand could increase by about 15% compared to total demand for 2023. It said stable prices in the past few quarters suggests that prices may have bottomed out and the company believes this trend could continue throughout the year.

Potassium sales volumes were up 19%, to 163,400 mt from the year-ago 137,500 mt, while revenues sank 27%, to $63.6 million from $86.9 million. The company cited significantly lower prices, but said the lower price environment – along with increased supply availability – could grow global potash demand by 10% in 2024 compared to last year. It expects its own sales to reach 600,000 mt in 2024.