FT : Erik Prince to launch fund focused on electric car battery metals

Erik Prince to launch fund focused on electric car battery metals
Blackwater founder to capitalise on the scramble for once niche metals across Africa

Erik Prince, the founder of private security company Blackwater, is launching a fund to capitalise on the scramble for battery metals across Africa and Asia, as the world’s largest carmakers gear up to go electric.

Mr Prince, a campaign adviser to president Donald Trump and brother of US education secretary Betsy DeVos, aims to raise up to $500m to invest in the supply of metals such as cobalt, copper and lithium that are needed for batteries.

“For all the talk of our virtual world, the innovation, you can’t build those vehicles without minerals that come from generally weird, hard-to-access places,” Mr Prince told the Financial Times.

Miners are pouring billions of dollars into developing deposits of the niche metals that will be increasingly needed for the global car industry to switch to electric cars.

One of the largest investors has been China, with Chinese companies buying stakes in deposits in the Democratic Republic of Congo and in Chile this year. Mr Prince also runs a Hong Kong-listed security and logistics company that is backed by China’s state-owned Citic Group.

Mr Prince said the new fund would target unexplored deposits that could be brought into production and then sold to larger mining companies. It will look to sell its investments after four to five years, Mr Prince said.

“ Chinese companies are not necessarily interested in the very upstream exploration,” he said. “They want to buy something in production which leaves that gap for us.”

Over 60 per cent of the world’s cobalt supply comes from the DRC, one of the poorest countries in the world. Chinese companies including Citic, Jinchuan Group and China Molybdenum are some of the largest investors in the African country.

Mr Prince, who wrote an opinion piece about Libya for the FT in 2017, made his name as a private military contractor in Iraq and Afghanistan with Blackwater, an operation that was eventually targeted by lawsuits and connected to civilian deaths in Baghdad in 2007. He sold the company in 2010.

Since then Mr Prince has run Frontier Services Group, which provides security and logistics services to companies in unstable countries. The company has won contracts to provide anti-piracy support to Somalia and security to oil companies in South Sudan.

But it has also ventured into natural resources, investing in a bauxite mine in Guinea, and discovering a copper and cobalt deposit in the Congo.

A former Navy Seal who now lives in Abu Dhabi, Mr Prince’s strong Chinese connections have helped with his mining investments. This year his mine in Guinea secured an agreement to supply China’s state-owned aluminium producer Chalco with bauxite.

Mr Prince, whose father sold automotive parts in West Michigan, said carmakers will need huge amounts of minerals to fulfil their visions.

“When I see the R&D budgets of all the major automakers ploughing huge money into hybrid or electric vehicles, I believe the demand curve for the unique minerals that make up an electric car and battery technology will be enormously high over the coming years,” Mr Prince said.

The Blackwater founder advised Mr Trump on his election campaign and met a Russian financier with direct ties to Vladimir Putin’s family in the weeks leading up to the US president’s inauguration — a meeting that is now being examined by special counsel Robert Mueller.

WSJ : Corporate Profit Crunch Looms as Stocks Slide

Corporate Profit Crunch Looms as Stocks Slide
Investors worry that the moneymaking outlook for companies will deteriorate further

A danger is lurking as the stock market dives: Earnings expectations are falling, too.

In December, analysts cut their earnings forecasts for 2019 on more than half the companies in the S&P 500, according to FactSet, the first time that had happened in two years.

For now, analysts still expect profits to keep growing in the coming year, but at a slower pace. They expect earnings for S&P 500 companies to grow 7.8% in 2019, down from their forecast of 10.1% at the end of September, according to FactSet.

That is a big climb down from the estimated 22% earnings growth rate in 2018, when corporate results were boosted by tax changes and a strong economy.

Investors are worried the moneymaking outlook for companies will deteriorate further. Equity strategists at Morgan Stanley now see a more than 50% chance of an earnings recession in 2019, defined as two consecutive quarters of earnings declines compared with the year before.

“An earnings recession isn’t a sure thing...but if these key [economic] indicators stay on their current path, it may be hard for stocks to avoid that conclusion,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab .

Fund managers surveyed by Bank of America Merrill Lynch in December were the most pessimistic on the outlook for profits since 2008. Among the factors weighing on companies: higher costs from labor and imported materials, the roll off from the boost from tax changes passed at the end of 2017 and sliding economic growth abroad.

Most earnings recessions over the past half-century coincided with actual economic recessions, as consumers earned less, spent less, and sales declined sharply.

But that isn’t always the case. Based on S&P Dow Jones Indices data, the last earnings recession took place in 2015 and 2016, as the price of U.S. crude briefly dropped to around $26 a barrel, wiping out the energy sector’s profits even as the economy remained steady. The effect was mild, with the S&P 500 falling just 14% from peak to trough, before recovering alongside earnings to end 2016 up 9.5%.
The average maximum fall in stocks during a dozen U.S. earnings recessions dating back to the 1950s was 24% below the stock market peak, according to LPL Research data. It is significantly less in the absence of a U.S. economic recession.

The S&P 500 is down about 15% from its peak in September, so some of this cycle’s earnings downgrades are already priced in, analysts say.

The severity of the earnings downturn may again depend largely on the fate of the energy sector and the direction of commodity prices. Oil and gas companies are likely candidates for some of the steepest downgrades in 2019, many say, given that the price of crude oil has dropped around 38% this quarter, while 2019 earnings growth estimates for the energy sector has only dropped to around 10% in late December from 24% in late September.
“Oil is adding to the agita associated with earnings,” said Sam Stovall, chief investment strategist at CFRA Research. While the energy sector is small in the U.S. stock market, investors are wondering “whether the decline in oil prices is more of a prediction for a global economic slowdown [than] simply a supply and demand imbalance.”

Another factor clouding the profit outlook: Stock analysts tend to start the year too optimistic. Annual earnings growth estimates for the S&P 500 have been on average 5.5 percentage points lower at the end of the year than initially estimated in January, according to CFRA.

Other signs portend worry about the economy, including a nearly inverted yield curve and weak manufacturing surveys. Almost half of U.S. chief financial officers believe a recession will strike the U.S. economy by the end of 2019, according to a Duke University/CFO Global Business Outlook survey.

Growth overseas has been even worse, with China’s economic slowdown recently deepening and Italy hovering on the brink of recession. S&P 500 companies get about 37% of their revenues outside the U.S., according to FactSet, meaning weakness abroad can dent their earnings.

Europe appears closer to the edge of a earnings recession, with analysts at Deutsche Bank forecasting earnings growth of just over 1% in 2019 for European stocks.

Meanwhile, rising wages—November’s U.S. wage growth matched the highest rate in nearly a decade—are pressuring companies’ profit margins just as they grapple with tariffs and supply-chain disruptions sparked by U.S. and China trade tensions.

“If companies can’t pass on the impact of tariffs through prices…this [earnings recession prospect] is what we need to watch,” said César Pérez Ruiz, chief investment officer at Pictet Wealth Management.

WSJ : Crypto’s 2019 Goal: Technology People Can Use

Crypto’s 2019 Goal: Technology People Can Use
After bitcoin slumps 70% in 2018, the digital currency’s fans look for a rebound

At the beginning of 2018, the question was whether bitcoin could live up to the hype of 2017’s manic rally. At the end of 2018, the answer seems to be an emphatic “no.”

After rising nearly 1,400% in 2017, bitcoin reversed hard in 2018, falling about 70% and erasing some $160 billion worth of value. The selloff exposed the budding cryptocurrency market’s shaky footing. Despite the entry of some established Wall Street players, scammers abound and few tangible uses for bitcoin and its underlying blockchain technology have emerged.

“A lot of people got punched in the face when bitcoin fell under $6,000,” said Chris Burniske, author of “Cryptoassets” and a partner at venture-capital firm Placeholder. “It was sobering.”

Where does the digital currency market go now that many speculators have been wiped out?

In 2017, the development of cryptocurrency technology took a back seat to getting rich. But crypto’s next era “has to be about how we can turn this technology into products for people to use,” said Andy Bromberg, the founder of Coinlist, a platform for startups raising capital via token offerings.

Jalak Jobanputra, the founder and managing partner of venture-capital firm Future\Perfect Ventures, said 2019 will bring a renewed focus on the companies and startups experimenting with the technology.

She is interested in both products and services that will appeal to users, and platforms like Ethereum, which hope to challenge Apple Inc.’s iOS and Google’s Android operating systems. It is that kind of expansion, she said, that will determine the fair price for bitcoin and other cryptocurrencies.

“There are no shortcuts to heads-down building tech,” she said. “That takes time.”

For all the hype, bitcoin and the hundreds of other digital currencies that have popped up over the years are still largely usable only by developers. While almost anyone can go online and find tools to build an app for iOS or Android, building a similar app for the Ethereum platform involves developing an entire suite of tools to connect the app to the platform itself.

“Building consumer products is really hard,” Mr. Bromberg said. “The developer tool kit isn’t there.”

The crypto true believers who stuck around through the slump also hope that 2019 brings an influx of institutional investors to the market.

That effort could get a boost when Intercontinental Exchange Inc. -- the parent of the New York Stock Exchange -- launches its crypto-focused exchange, Bakkt, which will allow customers to buy, sell, store, and spend digital currencies. If Bakkt can prove as safe and secure as NYSE, it could alleviate the concerns of institutional investors. Yet on Monday, ICE again delayed the service’s launch as it awaits approval from the Commodity Futures Trading Commission, further clouding the outlook for 2019.
It will take a lot of new liquidity to offset what’s been lost. The selloff cost the crypto market $700 billion in 2018, dwarfing the $15.7 billion raised by so-called initial coin offerings and the $2.6 billion venture-capital firms invested in crypto startups. Institutional investors will be wary of owning too much of the much smaller but still risky market.

“Crypto has a hard time realizing how small and nascent it is,” said Mr. Burniske. “We got deluded in how quickly we thought it would happen.”

NY Post : Apollo’s $20B Arconic bid hung up on credit worries: sources

Apollo’s $20B Arconic bid hung up on credit worries: sources

A deal that was supposed to be the biggest leveraged buyout of 2018 has been delayed into next year by recent turmoil in the credit markets, The Post has learned.

Billionaire Leon Black’s Apollo Global Management was hoping in December to sign a roughly $20 billion deal to buy Arconic, the New York-based aluminum parts maker that mostly serves the aerospace industry, sources close to the talks said.

Worries over liabilities about last year’s Grenfell tower disaster in London had recently complicated negotiations, as an Arconic subsidiary had supplied construction panels that were blamed for the quick spread of the fire that killed 72 people in June 2017.

As reported by The Post, Paul Singer’s Elliott Management, which is spearheading the Arconic sale, has recently agreed to shoulder the Grenfell liabilities despite continued criminal investigations and questions from British politicians about Arconic’s role.

Nevertheless, insiders pointed to the quick and unexpected tightening of credit markets for the delayed deal.

“Would you commit to raise $14 billion in this market?” a source said. “There is no market to finance a buyout of that size.”

Indications are that Apollo would move if the markets were to loosen, the source said.

The leveraged loan market is experiencing similar outflows to the S&P 500 index, which has plunged 15 percent since its Sept. 21 apex. Less leverage for buyouts means fewer public companies will be taken private, and those that do will attract lower prices.

“You’ve seen massive retail loan mutual fund outflows,” said the head of capital markets at a large lender, referring to funds run by firms like BlackRock and Franklin Templeton. “The sell-off has been quite dramatic throughout the course of December.”

Next month, banks are planning to syndicate loans for two large completed buyouts — a $6.9 billion buyout of Dun & Bradstreet, and a $13.2 billion buyout of Johnson Controls’ battery business — that closed in November. How they fare will be a bellwether for the leveraged-loan scene, the capital markets boss said.

If Barclays, Credit Suisse and JPMorgan, for example, cannot sell their loans to fund the Johnson buyout, or have to sell them well below par, the banks will get slammed with the losses.

“If they go poorly, the whole markets will be re-priced,” the source said. “I think the banks will lose money if they launch (Monday,) January 7th.”

Thomson’s Lipper & Wealth Management reports that December’s $9.4 billion in net outflows is the largest since it began tracking loan funds in 2003.

Lipper senior analyst Patrick Keon believes the Federal Reserve signaling it will slow down rate increases is hurting loan funds. “Investor demand for loan funds is fueled by rising interest rates,” he said.

“While the Fed did raise rates another 25 basis points (a basis point is one-hundredth of a percentage point) at its meeting last week, they also reduced their forecast for rate increases in 2019 down to two from three.

“Therefore the recent exodus from the loan fund peer group appears to be the result of … the Fed turning off the interest rate increases.”

The falling stock market doesn’t help. “If equities sold off 15 percent, why should I buy a leveraged loan at the same price?” the capital markets head asked, citing risk of a further downturn in bonds.

Arconic and Apollo declined to comment.

>>> Fox/Disney could be rejected by CADE – reported rumor (translated)

Fox/Disney could be rejected by CADE – reported rumor

The Walt Disney Company’s [NYSE:DIS] acquisition of Twenty-First Century Fox [NASDAQ:FOXA] could be rejected by Brazil’s competition authority CADE, Veja reported on 29 December, without citing sources.
The merger is at risk in Brazil, the Portuguese-language item said. CADE has recently postponed the hearing in which it was going to review the merger because commissioners did not reach a consensus on the matter.
The problem with the deal is the sports sector, according to the report. Disney owns the ESPN channels and Fox has its own sports channels. CADE staff has recommended the rejection of the deal, the item said.
As reported, on 3 December CADE’s General Superintendent’s Office recommended the approval of the deal with restrictions, citing competition problems in the pay-TV sports channel market.

>>> Ophir Energy confirms talks with PT Medco Energi about a cash sale

Ophir Energy confirms talks with PT Medco Energi about a cash sale
31 DEC 2018
Ophir Energy plc (LSE: OPHR), the UK-based energy company, issued a statement confirming talks about its potential cash sale to PT Medco Energi Global PTE Ltd., the energy company with Indonesian assets.
Ophir named Morgan Stanley as financial advisor and corporate broker and Investec as corporate broker in the release.
The company stated as follows:
Statement regarding the potential acquisition of Ophir Energy plc (“Ophir”) by PT Medco Energi Global PTE Ltd (“Medco”) (a wholly-owned subsidiary of PT Medco Energi Internasional Tbk).
Further to the share price movement in Ophir, the Boards of Ophir and Medco confirm they are in discussions about a possible cash offer to be made by Medco for the entire issued and to be issued share capital of Ophir.
This announcement does not amount to a firm intention to make an offer under Rule 2.7 of the Code and there can be no certainty that any offer will be made, or as to the terms on which any offer might be made. A further announcement will be made as and when appropriate.
For the purposes of Rule 2.4(c) of the Code, in accordance with Rule 2.6(a) of the Code, Ophir announces that, by not later than 5.00 pm on 28 January 2019 (the “Deadline”), Medco must either announce a firm intention to make an offer for Ophir under Rule 2.7 of the Code or announce that it does not intend to make an offer for Ophir, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. The Deadline will not apply in circumstances where either: (a) it has been either extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code; or (b) Rule 2.6(b) of the Code applies, by virtue of a firm intention to make an offer for Ophir having been announced by another offeror prior to the Deadline.
This announcement has been made with the consent of Medco.
About Ophir:
Ophir is an independent upstream oil and gas exploration and production company. It is listed on the London Stock Exchange (LEI: 213800LAZOZTKPAV258).
About Medco:
Medco is a leading Southeast Asian energy and natural resources company listed on the Jakarta Stock Exchange with a market capitalisation of approximately USD 900 million, operating across three key business segments being Oil & Gas, Power and Mining.
In Oil & Gas, Medco has significant experience in managing complex and mature onshore and offshore assets and moving discovered and challenged resources to production, including LNG. Medco’s oil and gas assets are based primarily in Indonesia but it is focussed on expanding its Southeast Asia presence and adding to its existing international assets in the Middle East and North Africa.
Medco also operates gas, geothermal and hydro power plants in Indonesia through its 88% consolidated interest in Medco Power (12% held by the International Finance Corporation) and has an effective 39% non-consolidated interest in a large Indonesian copper and gold mine.

>>> Cabot Energy warns future is in doubt without emergency funds

Cabot Energy warns future is in doubt without emergency funds
01 JAN 2019
Cabot Energy [LON:CAB], the AIM quoted oil and gas company focused on creating predictable production growth in Canada, balanced with high impact exploration in Italy, on 31 December provided a corporate update on its financial status.
As stated in the Company's Interim Results dated 28 September 2018, additional equity or debt funding was required by the end of 2018 in order to: (i) settle overdue Canadian trade creditors arising predominantly from the previous management team's 2017 and 2018 Canada work programme cost overruns; (ii) fund ongoing corporate costs; and (iii) deliver production growth in Canada and develop the Italy assets. The work programmes (and associated costs) were under review.

During the past two months, and as first reported by the Company on 20 November 2018, the Company's Canadian crude oil revenues were unexpectedly and adversely impacted by the Edmonton Light Oil contract price that had diverged negatively from the West Texas Intermediate crude oil benchmark price. Whilst this discount to West Texas Intermediate crude oil price has narrowed due to the Alberta Government curtailment of larger producers (update announcement dated 6 December 2018), the Directors intend to monitor this impact before committing to the next phase of capital investment for production growth.

The Company has the continued support of its majority shareholder, High Power Petroleum, and the Directors are in advanced discussions with the Company's other significant shareholders regarding an equity fundraising to enable the settlement of the overdue Canadian trade creditors and provide short term working capital through to the end of Q1 2019. Any equity fundraising, which would be subject to shareholder approval, is expected to be undertaken at a deep discount to the current market price and, once finalised, is expected to be announced during January 2019. The Directors intend extending an invitation to all shareholders to participate in any equity fundraising on the same terms as the Company's major shareholders by way of an open offer. The Company would then plan to approach the market again in Q2 2019 to seek further equity funding for a growth business case.

The Directors are reasonably optimistic that the Company can raise additional equity funding from existing and new shareholders, as it has done in the past, but it is not wholly within the Company's control and as such, represents a material financial uncertainty. Failure to complete a fundraising in January 2019 would cast significant doubt upon the Company's continued ability to operate as a going concern as it may be unable to realise its assets and discharge its liabilities in the normal course of business.

A further announcement will be made in due course.

FT : Quarterly earnings: cloudy horizons

Quarterly earnings: cloudy horizons
Filing fewer reports would not necessarily encourage long-term thinking

Donald Trump is possibly the least likely person to make a case against oversharing. But in a social media post this year, the US tweeter in chief did just that when he questioned the need for quarterly reporting.

These pesky releases are expensive to produce and, some argue, incentivise chief executives to do whatever necessary to flatter quarterly earnings. Annoying, when all they really want to do is focus on long-term strategy. Not so fast. Both chief executives and investors are guilty of short-term thinking. But it is less clear that filing fewer reports would encourage them to extend their horizons.

For sure, quarterly reports have become less popular. A European Commission directive in 2013 relaxed the requirement for companies in the EU to file every three months. The UK soon followed suit. Indeed, the number of FTSE 100 companies producing quarterly reports fell from 70 in 2016 to 57 last year.

Skipping the quarterly release removed the psychological pressure of trying to please the market. The elaborate theatre of delivering and explaining a report to analysts and investors also went away. Those that still have quarterlies operate in global markets — or have a US listing — and feel compelled to do so.

But does switching from three months to six months promote long-term thinking? Research by the CFA Institute on the UK experience suggested that the frequency of a company’s reports does not materially affect its level of corporate investment.

To promote decision making for the long term, say three to five years, an extra three months will not make that much difference. So where do you stop? One year? Two years? A longer window between reports also allows for rumours to spiral, and might create the conditions for insider trading. Then again, it favours investors with the wherewithal to do their own research.

If the goal is to combat short-termism, then strengthen the links between remuneration and long-term performance.

FT : South Korea exports hit by cooling demand from China

South Korea exports hit by cooling demand from China
Shipments of memory chips and other goods plunge as Beijing’s economic woes spread

South Korea’s exports fell in December in the latest sign that a slowdown in China and the fallout of the trade war between Beijing and the US are hitting other regional economies.

The country’s exports fell 1.2 per cent last month from a year earlier, missing economists’ expectations for a rise, hit by cooling demand from China and falling prices of memory chips and oil. 

The volume of goods shipped to China, which takes in a quarter of South Korea’s overseas shipments, plunged nearly 14 per cent in December, compared with a near 15 per cent jump a year earlier, according to data released by Seoul’s trade ministry on Tuesday.

“We are facing tough export conditions due to the slowdown of major economies and Sino-US trade tensions,” said Sung Yun-mo, commerce minister of Asia’s fourth-largest economy.

South Korea is one of the first big economies in the region to feel the effects of the slowdown in China but other regional trading partners, from Taiwan and Japan to Australia, are also bracing for the possible shockwaves.

The US and China are Seoul’s two biggest trading partners, with South Korea exporting mostly intermediate goods used in Chinese home appliances, computers and telecoms devices. 

South Korea is the world’s leading exporter of microchips, ships, cars and petroleum products. The country’s export data are seen as a bellwether for global demand as they are released earlier than most other big economies. 

Shipments of semiconductors, the country’s biggest export item, slid 8.3 per cent from a year earlier as global technology companies reduced investment in data centres, prompting memory chip prices to fall in recent months. 

Exports for 2018 increased 5.5 per cent compared with 15.8 per cent growth in 2017. The government expects the country’s export growth rate to slow further this year to 3.1 per cent. 

South Korea has announced a string of stimulus measures, including tax cuts, to minimise the adverse impact of the global trade war and China’s slowdown. 

But economists have warned that the region’s export-dependent nations are unlikely to escape the full impact, with larger collateral damage expected for countries with close ties to supply chains in China. 

“The data show that our concerns over contagion have been realised,” said Lee Sang-jae, an economist at Eugene Investment & Securities. “The export contraction is unlikely to be a blip. The problem is likely to worsen next year. Other countries in the region such as Taiwan, dependent on trade with China, will also feel the pinch.”