TheChek News Flow

Metals and Mining

Mulled Mine 2014 * Investment thesis – We remain neutral on the metals and mining sector on a six-month view; however, we think the sector can potentially deliver a strong second-half 2014 performance based on free cash flow, cost cutting and volume growth as the market looks into 2015. * 2013 the year that was – In 2013 the mining companies changed CEOs, cut capex plans and focused on costs but, despite this, the sector has underperformed the FTSE 100 by around 24% YTD. This looks set to be the third year running that the sector has underperformed, following 19% underperformance in 2011 and 12% in 2012. * 2014 and inflection year? – We believe that 2014 will be a tale of two halves. We believe the sector will perform in line with markets in the first half of 2014 driven by a near-term slowdown in China and a muted commodity price outlook. However, we think the sector will benefit in the second half from improving free cash flow yields and improving balance sheets driven by reduced capital spend and cost cutting. We see 2015 as a potential fillip year for the mining industry and we think that investors should position themselves for this by mid-2014. * Valuation – We forecast the sector to deliver CAGR in earnings of around 7% until the end of the decade, driven principally by volume growth and cost cutting rather than by commodity prices. Importantly, we forecast free cash flow yield to grow at a CAGR of 23.9% until the end of the decade, which is a function of cutbacks in capex. Overall, we estimate the sector is trading at a c10% PE discount to the UK market, with Rio Tinto remaining the cheapest name on a relative basis. * Risks – The key risk for 2014 is a deterioration or even collapse in emerging markets growth, which if to occur would result in further downward pressure on commodity markets. US tapering could also provide broader support for the US$ which again could provide downward pressure on commodity markets. * Stocks for 2014 – We believe the large diversified miners will outperform the sector in 2014. Rio Tinto remains our favoured Buy among the large-cap UK diversified mining companies, followed by Glencore-Xstrata. We have Sell ratings on Antofagasta, First Quantum, Nyrstar, New World Resources, African Barrick, Assore, Fresnillo, Hochschild, Petropavlovsk and Randgold Resources. We remain underweight the gold and base metals stocks and our least favoured name among the large-cap miners is Anglo American.

Fitch: German non-life insurance outlook remains stable - Fitch expects growth in German non-life premiums of between 2% and 3% for 2014, extending the same growth pattern for 2013. This follows the sector's strongest growth in premiums for more than 10 years in 2012 (5.1%) and 2011 (4.5%), indicating that the sector continues to maintain underwriting discipline through the current prolonged period of low investment yields. - Fitch forecasts that the German non-life sector will report a gross combined ratio of 93% in 2014. The sector reported an improved gross combined ratio of 94.8% for 2012, down from 97.1% in 2011. Fitch expects this trend to continue, although exceptional claims leading to a weaker gross combined ratio of close to 98% will buck the trend for 2013.

ThyssenKrupp AG Shareholder, CEVIAN with 6.1% stake, interested in breaking up the company, as it is more valuable that way - German press

Top pick is developed market equities, expect 10% gains; corporate bonds should outperform govt bonds, USD rally to broaden, Morgan Stanley writes in 2014 global strategy outlook.

Key ideas:

* For European stocks go long financials and short cyclicals * Asian equities: Long Nikkei, HSCEI, Kospi, Taiex; short CNX Nifty, JCI, SET, FBMKLCI, FSSTI * In U.S. stocks prefer health care over staples;technology over discretionary; chemicals over industrials and energy * Buy U.S. credit vs European credit * Long USD interest-rate volatility * Buy Spain over Italy sovereign bonds * Long U.S. IG long-duration discount bonds versus UST * Short EM sovereign credit * Long new-issue CLO equity

Centrica PLC To reduce UK household gas and electric prices by an average of 3.2% from Jan 1st - Equivalent to £41 on average off the annual dual fuel bill1. An additional £12 customer rebate for the Government`s Warm Home Discount (WHD) scheme brings a total annual saving of £53 to the average dual fuel customer. - Announcement follows the Government`s proposed decision to make changes to the Energy Company Obligation and to introduce a rebate to customers to cover the cost of the WHD scheme. It also takes into account the agreement between the Government and electricity network companies to defer an element of electricity distribution costs in the period from April 2014 to March 2015. British Gas is passing on the benefit of all these changes to its customers in full.

* Upcoming catalysts suggest more downside than upside risk Shire has diversified its pipeline and appears ideally positioned to benefit from strong underlying growth but we believe a few upcoming clinical trial read-outs carry more downside risk than upside risk. Indeed, we believe the Lifitegrast Phase III trial and the Vyvanse in Major Depression Disorder may not have selected the right type of patients and could lead to disappointing results. Moreover, we believe Shire could face negative sentiment risk around the challenge of the Vyvanse patent in mid-2014 and prefer staying on the side-line for now, downgrading to Neutral.

*Lifitegrast remains high risk; PIII design could be selecting the wrong endpoint We believe the main short-term sentiment risk lies with Lifitegrast with Phase III expected by end 2013. Over the last decade, 14 projects for dry eye have failed and we believe most of these failures were due to the difficulty of identifying patients with pure dry eye and excluding patients with dry eye like symptoms. As we fear Lifitegrast Phase III could have failed to exclude these patients, we see the chance of success as low. Also, Eleven Biotherapeutics EBI-005 Phase II data shows a lack of correlation between OSDI and Eye Dryness improvement. This makes us believe that Shire decision to switch the symptom endpoint from OSDI to Eye Dryness in the second Phase III could be falling into the trap of selecting the wrong endpoint.

* Vyvanse patent seen as main sentiment risk – reviewing pro-drugs patent risk Although we believe the uncertainty around the validity of the Vyvanse patent could lead to sentiment headwind in 2014, our included analysis of the pro-drug patent history indicates that the historical trends are supportive of Vyvanse and we do not assume generic competition before patent expiry.

* Valuation: blend 2014 PE and probability weighted DCF We value Shire using a blend of Specialty Pharma 2014 PE (19.8x) and a DCF-based model, and fine tune our price target to 3,060p from 3,100p. We add ViroPharma to our DCF, adjust the pipeline and increase the weight of the 2014 PE to 40% (from 30%) as we believe the ViroPharma acquisition diversifies the revenues away from Vyvanse which is facing patent challenge in 2014.

Aberdeen -1% CS cut to N from OP post recent performance BMW -1% CEO says current FX headwdinds continue to remain an issue Carlsberg +1% CS add to Focus List (+ve on restructuring potential) GKN unch Spec co may bid for Boeing Wing Parts Maker ($500m) L'Oreal +0.5% Announce plans to buy back up to €500m of shares Lloyds unch Spec Osborne will signal plants this wk for gvt stk sale Miners -0.75% Copper -0.5%, China -0.7%, OZ Miners -0.8% Mittal unch Terms of the Alabama purchase inline Outokumpu +4% TKA repurchasing stainless steel assets (Terni & VDM) Premier Fds +1% Spec co in talks with investors reg funding for Hovis Petrofac -1-2% Spec co looking at Foster Wheeler (FWLT US, mkt cap ~$3b) Renault unch Spec co preparing to resume exports to Iran Repsol unch More spec a deal with Argentinian gvt to be reached this yr Thyssen -7% Sell Alabama plant for $1.5b (inline). Announce 10% cap inc Vivendi +0.5% Spec co could announce a buyback as soon as Q1

Morgan Stanley cuts 2014 Euro Zone GDP growth forecast from 0.9% to 0.5%

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Repsol’s Minority Shareholders Reject YPF Accord, Mundo Reports 2013-12-02 07:16:01.216 GMT

By Manuel Baigorri Dec. 2 (Bloomberg) -- Repsol’s minority shareholders are unhappy with compensation accord over YPF and will continue with legal action against Argentina, El Mundo reports, citing comments made by minority shareholders lobby group Aemec. * Minority holders were most affected by expropriation of YPF and will continue with litigation until a fair compensation is obtained, says Henning Wegener, director general of Aemec, the newspaper reports * Link to story in Spanish: http://tinyurl.com/pl4se2m * NOTE: Repsol to Begin Negotiations With Argentina Over YPF Accord NSN MWZG1G6S972N <GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Manuel Baigorri in Madrid at +34-91-7009647 or mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at +49-30-70010-6215 or kwong11@bloomberg.net

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China Sets IPO Reform Plan Signaling End of Freeze on Listings 2013-11-30 16:01:00.1 GMT

By Bloomberg News Dec. 1 (Bloomberg) -- China’s securities regulator issued a reform plan for initial public offerings, as the government prepares to lift a more than one-year freeze on new listings in the world’s second-biggest economy. About 50 companies are expected to complete the IPO approval preparations and list or be ready to do so by the end of January, the China Securities Regulatory Commission said in a statement on its website yesterday. There are more than 760 companies in the queue for approval and it will take about a year to complete an audit of all the applications, the regulator said. China, the world’s largest IPO market in 2010, with a record $71 billion raised, hasn’t had an initial public offering since October 2012 as the CSRC cracked down on fraud and misconduct among advisers and companies. Communist Party leaders pledged last month to change the IPO system as part of a package of reforms that signaled the biggest expansion of economic freedoms since at least the 1990s. “This is positive for the long-term development of the market as both companies and stock investors will gradually have more choice under the new policy,” said He Zongyan, an analyst at Shenyin & Wanguo Securities Co. in Shanghai. “It may add downward pressure on the stock market in the short term as 50 new IPOs in the next few months may drain capital and force a correction in some inflated stocks.”

Hurt Confidence

The regulator stopped reviewing applications for listing on the country’s stock exchanges in Shanghai and Shenzhen amid concern a flood of new shares could hurt investor confidence. Xiao Gang, a former central banker and Bank of China Ltd. chairman who was named head of the CSRC in March, said Nov. 19 the shift to a looser IPO system must be gradual to avoid shocks to the market. China’s benchmark Shanghai Composite Index has dropped 2.1 percent this year and the CSI300 Index has fallen 3.3 percent, the worst performers among 20 primary equity indexes in the Asia-Pacific region tracked by Bloomberg. In a separate statement, the CSRC said it will draft rules for a trial to allow companies to sell preferred stock, based on guidance issued yesterday by the State Council, and seek public feedback on its proposals. The use of preference shares will help deepen corporate reform, provide a flexible financing tool for companies and promote the stable development of the capital market, the State Council, China’s cabinet led by Premier Li Keqiang, said in guidelines issued on the central government website.

Capital Requirements

Banks will be able to include preference shares in calculations of their tier-one capital, giving them a new financing instrument to meet capital requirements of the Basel Committee on Banking Supervision, CSRC spokesman Deng Ge said in the statement. Preference shares will also help reduce corporate debt levels, Deng said. The CSRC’s announcements build on reform pledges made in a 60-point document released by the Communist Party on Nov. 15 after its top leaders met to map out policy changes for the coming decade. They vowed to give markets a bigger role in the economy and reduce government interference. Item 12 on the list focused on improving financial markets, including moving to a registration-based system for issuing stocks and increasing the proportion of funds companies raise through direct financing.

Sole Discretion

Under current rules for domestic IPOs, companies go through a review and approval system, where a CSRC committee has the sole discretion to decide whether a company is fit for listing. The process can involve several rounds of reviews and take years, the official Xinhua News Agency said in a report yesterday. In the new system, the regulator will only be responsible for examining whether applicants are qualified, leaving investors and the markets to make their own judgment about a company’s value and the risks of buying its shares. “We want to emphasize that the market should not see the registration system as a sign that the government won’t supervise and regulate the market anymore,” an unidentified CSRC official said in a question and answer statement posted on the regulator’s website. “We will review and make sure the application materials carry accurate and adequate information but leave it to investors to decide whether such stocks are worth investing in.”

Curb Misconduct

The new rules still impose requirements and threaten penalties on IPO advisers in an effort to curb misconduct in first-time share sales. The CSRC has penalized at least three brokerages since May for inadequate due diligence on IPOs. It fined Ping An Securities Co. and barred the firm from underwriting for three months. Minsheng Securities Co. was given a warning and fined and Nanjing Securities Co. was censured. Some bankers at all three firms were barred from the industry for life. Everbright Securities said in June the CSRC had begun an investigation of the company in relation to Henan Tianfon Energy-Saving Panel Science & Technology Co.’s IPO application, which the regulator said contained falsified information. The CSRC said the following month it had concluded field investigation work and passed the case to its administrative penalties commission.

Awaiting Approval

Org Packaging Co., which makes beverage cans, and Fujian Tengxin Foods Co. were the last Chinese companies to list when they started trading in Shenzhen in October 2012. Tengxin changed its name to Haixin Foods Co. on July 4. Companies including state-owned China National Nuclear Corp. and Bank of Shanghai Co. were awaiting approval for IPOs as of Oct. 31, according to a list on the CSRC’s website. Some 83 companies have had their IPO applications cleared by the CSRC listing committee and are pending final approval, including Shaanxi Coal & Chemical Industry Group Co. and China Postal Express & Logistics Co., the regulator’s website shows. The companies may raise a combined 55.8 billion yuan ($9.2 billion), according to June estimates from Ernst & Young LLP.

For Related News and Information: China’s Path to U.S.-Style IPOs Confronts Get-Rich-Quick Culture NSN MWN4246K50YT <GO> Xiao Turns Gray as China IPO Halt Precedes Market-Abuse Rule NSN MQQRV86TTDU7 <GO> IPO Bankers Become Frogs in Hot Water Amid China Market Halt NSN MKXIBB6TTDSB <GO> Top Finance Stories: TOP FIN <GO> Top China news: TOP CHINA <GO>

--Aipeng Soo, Aibing Guo and Daryl Loo. Editors: Nerys Avery, Greg Ahlstrand

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at +86-10-6649-7568 or asoo4@bloomberg.net; Aibing Guo in Hong Kong at +852-2977-4623 or aguo10@bloomberg.net; Daryl Loo in Beijing at +86-10-6649-7540 or dloo7@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at +852-2977-6486 or csomayaji@bloomberg.net