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What happened? Metals and mining companies attending day one of our 19th annual Transitioning Materials Conference were ArcelorMittal (+), Aurubis (=), Eramet (=), First Quantum (=), SSAB (+) and Vale (-). BNPP Exane View: ArcelorMittal (+) - Explaining inorganic growth strategy Near-term, management flagged positive volume momentum, relative stability in metal spreads across regions (except in the US) as well as the unsustainable margin/export situation in China. Capital allocation was a focus in many meetings, notably the still evolving decarbonization strategy in Europe (FEED to be completed by year-end), the rationale behind the Vallourec deal (more than a financial investment) and remaining opportunities in North America. SSAB (+) - Defending plate fundamentals As expected, focus was largely on the near-term outlook for US plate. While Special Steel prices are seen as relatively stable to slightly down (in-line with guidance), standard plate prices could further decline but management flags incoming relief on the scrap side and dismisses concerns around undisciplined capacity growth. Many investors also looked for answers on how SSAB could balance decarbonization investments with buybacks. There was a clear debate around the right capex number for FY25, which could be put to rest when SSAB announces plans in coming months on which BF site to convert first to EAF technology. Vale (-) - Sticking to value over volume Arguing that the cost curve has shifted upwards, leaving the 90th percentile higher than appreciated by the market. No change to the value over volume strategy but will manage their portfolio to market demands and not to balance the market given new projects coming online (Simandou). The asset review process in base metals continues with an update expected in the middle of the year. Samarco provisioning differences vs BHP (=) not driven by expectations of different end results. Aurubis (=) - No change expected to growth...
ERA ERA SSABA SSABB MT NDA VALE FM
Growing exposure into energy transition metals: Lithium, Class I Nickel, Cobalt Eramet hosted their CMD on November 13. Lithium will represent the majority of growth capex deployment in the coming years. The delivery of Phase I of Centenario lithium (Argentina) in 2024 will no doubt be a key milestone to build market confidence into Phase II. Eramet''s investment decision was de-risked on price, using a Lithium Carbonate reference in a USD15-20k/t (latest spot at USD19k/t). Some exit or major de-risking of lossmaking SLN would be a significant catalyst for investors: French government officials toured New Caledonia last week and have now been alerted to the emergency of the situation, with both SLN and KNS no longer supported by shareholders. Balance sheet repositioned ahead of a EUR1.9bn capex over 2024-2026e The size of the capex plan envisaged over 2024-2026e remains large and is virtually equivalent to Eramet''s current market cap. On an EBITDA adjusted basis (including Weda Bay''s contribution) ND/EBITDA would rise to 1.8x by end FY24e on our new numbers and 1.4x by end FY25e. Using our group (reported) EBITDA metric, ND/EBITDA would rise to 2.8x at end FY24e (2.1x excluding SLN State loan) and 1.9 by end FY25e. De facto, Eramet''s re-leveraging in FY24-25e will make the stock more sensitive to the macro cycle, but its debt structure and lower breakeven should help smooth any adverse impact from the cycle compared to previous capex deployment phases. Building on competitive advantage and cashflow generation. Attractive medium term Eramet finds itself at an interesting juncture, with the benefit of growth in two low-cost operations (Manganese ore, Weda Bay nickel) set to provide through cycle FCF, even under less favourable market conditions, giving the group some leeway to deploy its capex programme in energy transition projects, in particular Lithium in Argentina. We understand additional partnerships may be explored to keep de-risking some of...
Eramet Eramet SA
On the occasion of yesterday’s first-ever Capital Markets Day, the group presented its strategy and elaborated on the new growth investments for the years to come. Some of these are under way, the outcome of which will have to be evaluated in terms of opportunity and risk. That said, we remain a bit cautious in the short-term on manganese and nickel, where prices are still depressed owing to the tough macro environment.
The trading statement for the Q3 23 showed the expected sharp contraction in sales, leading to yet another reduction in the group’s guidance (the fourth in a row). No uptick in prices is expected for Q4. Lower input costs are helping, but the fall in profits is spectacular. We will not change our estimates materially (at least for FY23) since we had expected this negative development. In our view, there is room to improve the group’s communication.
A military coup is going on in Gabon, a key country for Eramet This is where the group mines…100% of its manganese, its biggest segment The outcome of the coup is obviously uncertain, but the negative impact could be massive In any case, expect at least disruptions for this business We will put a discount on the segment, implying a significantly reduced target price given its size
The H1 23 results were significantly below market expectations. Prices were the main trigger for these weak numbers, even if volumes were also down. The FY23 “adjusted EBITDA guidance has, again, been revised downwards despite the strong performance in Weda Bay (38.7% held) which hides a pretty tough year for the rest of the business”. We will revise downwards our numbers for FY23 substantially, as well as going forward in all likelihood.
We have cut our FY23e EBITDA by 6% to EUR783m and stand below guidance/consensus Manganese Alloy prices have continued to drift lower YTD on soft demand from steel customers in Europe: we cut our average realised price by 13%. Our average realised price for the year would now stand 39% below last year''s peak amid Ukraine disruptions. Q1 sales showed Eramet''s mines in Gabon missed shipments in Q1 after a landslide impacted the railway and therefore did not capture favourable ore prices then. Volumes were guided lower for the year. At SLN, the discount in ferronickel prices has grown larger this year, at 26% in Q1 in EUR. The latest market trends show no improvement amid a surplus in ferronickel/NPI supply. Mineral sands were hit by one-off maintenance in H1. On 27 April, Eramet cut its FY23 EBITDA sensitivity to EUR1.1bn including Weda Bay (cEUR900m without). Consensus numbers have dropped by 21% over the last month. We now stand 7% below. Portfolio transformation continues, but without the support from rising prices Eramet''s lithium project Centenario is still meant to be commissioned in 1Q 2024, with first production from 2Q 2024, with Phase I of the project to benefit from a partial exemption from the exchange control system in place in Argentina. Feasibility study on a phase II of 51kt is still under feasibility study for a decision by YE2023, with partner Tsingshan hinting at a USD1.1bn investment (tbc) (Eramet 50.1%). The divestment of Aubert and Duval received anti-trust approval from China''s Mofcom for a EUR95m EV. A takeout offer was also received on Erasteel from PE group Syntagma. With capex guided at EUR600m for the year, FCF after tax goes negative and we have net debt rising by EUR229m after 2022 dividends to manganese minorities and shareholders. With reduced earnings power and amid an uncertain macro, the prospect of another large capex in lithium and of a USD2.6bn HPAL JV with BASF in Indonesia raises concerns on the funding...
As expected, revenues in Q1 23 were significantly down on both a yoy and sequential basis. This is mainly due lower prices and somewhat lower volumes in manganese. As a result and considering the current price levels, the group has revised its FY23 EBITDA guidance downward by some 9% on an adjusted basis. We still do not appreciate the new reporting of the group (i.e. adjusted vs reported) which does not help transparency in our view.
Eramet released an expected set of results for FY22, which showed a higher level of profitability and a significant decrease in indebtedness. Looking forward, the context is less favourable due to declining prices but no one expected such operating conditions to last forever. The outlook suggests that our numbers are too high and we will amend these at least for FY23 while we will integrate the first benefits of the Lithium project, whose commissioning is expected in FY24.
The group’s revenues were firmly up in Q3 on a yoy basis. They nonetheless showed a significant slowdown qoq, mainly due to prices, which should remain under pressure in Q4, leading the group to lower its EBITDA guidance for FY22. We will fine-tune our numbers and valuation to the downside, even if the group’s new projects look promising.
Manganese ore and alloy prices reset on Steel production challenges 2023 is shaping to be another bump on the road. Manganese is Eramet''s earnings engine. Manganese ore prices have corrected to USD4.75/dmtu since mid-September mostly in line with our price scenario. Manganese alloy prices have been coming down by between 24-32% QoQ, also mostly in line with our price sequence and responding to blast furnace production cuts in Europe (16% of EU capacity currently idled on too-high power cuts). Manganese had been more resilient than iron ore through summer, but the correction has come eventually. Trimming FY22e EBITDA marginally (-6%), FY23e materially (-23%): consensus demanding Following our revised nickel price assumptions until YE we now stand marginally below guidance at EUR1,534m EBITDA, which is 14% below consensus currently at EUR1.77bn (public consensus). Eramet''s guidance stands at EUR1.6bn for FY22e. Our main delta with consensus numbers is in FY23e on lower manganese alloy prices (we have left our ore price assumptions unchanged) and more importantly the cost price squeeze coming in manganese alloys: we stand 33% below consensus EBITDA in FY23e. Manganese alloys were the largest contributor to the group''s EBITDA in H1 at EUR488m: we forecast a contribution of EUR143m in H2, on rising ore and other costs, and falling end prices, with Q4 bound to be the weakest quarter. This also leaves FY23e with a slow start. Valuation cut to EUR88 per share (from EUR123). Rating downgraded to Neutral Our TP of EUR88 per share is based on our SOTP23e. Our revised earnings leave us with a FCF breakeven position in FY23 assuming some free-up in the working capital built so far this year. This leaves the stock with insufficient upside and dividend yield versus the peer group to maintain our relative Outperform stance at this stage, in spite of Eramet''s continuing transformation and attractive projects medium term.
The group released a strong set of results for H1 22 These were supported by volumes, but most of all prices The latter should be less favorably oriented in H2 The group marginally increased its FY EBITDA target (from €1.5bn to €1.6bn) We will fine-tune our numbers, with no big changes expected Our TP may look optimistic given the less favorable momentum on commos writ large, even if we feel comfortable with our recommendation
Prices were strong across the board in Q1. The operational performance was also satisfactory. The group has raised its FY22 guidance. We will upgrade our numbers and price target after this release.
The FY21 results came in rather above the group’s guidance. The production of manganese ore, the exports of nickel ore and the production in Weda Bay have all steadily increased. The disposal of Aubert&Duval is good news. Including ongoing disposals, net debt would be a mere €388m. The outlook is unsurprisingly bullish, even if it may be adjusted throughout the year, with current nickel and manganese prices currently very supportive.
Eramet will proceed with the Lithium project in Argentina The group will join forces with Chinese Tsingshan First production is due in FY24 We appreciate the group’s diversification, particularly in “green” raw materials
The Q3 trading statement shows a pretty strong rebound in activity. The pricing situation remains favorable in most of the group’s segments. Eramet upgraded its EBITDA guidance for the full year to “close to €1bn”. We will also upgrade our numbers on the back of these solid Q3 revenues.
The H1 21 results were significantly up on volumes (manganese) and prices Current prices suggest a further improvement in profitability Seasonality should also give it a boost The group raised its FY EBITDA guidance We will revise our forecasts upwards
The increase in prices and volumes translates into a sound top-line growth for Q1 21 The group confirms its FY guidance A solution is still sought for Aubert&Duval We will upgrade our target price to account better for the momentum in the group’s activities
The Duval family would be willing to see CEO Mrs Bories leave She would be blamed for the level of debt, the firing of local managers as well as her potential strategy for Aubert&Duval The French state (a co-shareholder of the group) would disagree and like to see her stay Uncertainty is certainly not positive for the share price
The FY 20 results were in line with management guidance at the operating level, and above consensus H2 was much stronger than H1 (EBITDA €278m vs €120m) on the back of higher nickel prices, increase in manganese volumes and nickel ore exports. The group’s free cash flow was almost at break-even in FY20 (€-36m), which is good news given the level of debt The outlook for FY21 is very positive thanks to volume expansion and the current commodity prices
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