The Bellwether – Issue 22

Releasing the 22nd issue of The Bellwether, as published by FMIC's IAG-Research.

This is a fortnightly publication on market action and outlook.

The following are the highlights of the issue:

Government lifts ban on mining permits; positive but no big deal for some

Competition hits AP’s hold on ancillary market; comeback of geothermal unit in 2H2013 is key to earnings

Scandium plant may be NIKL’s second upside

Government lifts ban on mining permits; positive but no big deal for some

A survey of the mining sector’s views on the government’s lifting of the ban on exploration and mining agreements.

Competition hits AP’s hold on ancillary market; comeback of geothermal unit in 2H2013 is key to earnings

More players in ancillary

What AP has put up in the reserve/ancillary power market as a first mover advantage is no longer just its own. The onslaught of competition hit AP hard. Ancillary energy sales dropped 19% last year. Ancillary revenues slid 7% or Php820mn to Php11.5bn. It should have been a more lucrative year for AP’s ancillary. Ancillary revenues were a third of the power generation EBITDA worth Php32bn. But the 2012 ancillary market results were inopportune. A record high 7,800MW peak demand in Luzon grid was a silver lining, demand-wise. Instead, competitors snatched a bigger share of the action; names like 728MW Caliraya Botocan Kalayaan operated by Sumitomo Corp. and Lopez-owned Energy Development Corp. through 305MW Green Core and 132MW FGHydro. Other difficulties were: 1) Magat’s water level being below the rule curve which held back contracting in 4Q2012; and 2) slower regulatory action on ancillary contract applications.

Scandium plant may be NIKL’s second upside

NIKL’s key earnings upside was its $150mn Taganito nickel ore processing High Pressure Acid Leaching Plant, its 2nd HPAL. The HPAL will be operationally in full swing by 2014 and underpins a consensus earnings growth of 44% to Php4bn next year. Still, NIKL’s second upside could be in the making. Sumitomo Mining Ltd. --NIKL’s partner in the HPAL -- is doing a trial run next year of a milestone technology, the first in the country, that will recover and commercialize Scandium production, a rare earth metal derived from HPAL’s end-product nickel sulfide cobalt (NSC), sold at $2,000/kg in the open market (no LME benchmark) and used as a heat resistant, metal strengthener additive to aluminum and batteries. Scandium, also produced in Russia, Ukraine and China, go into automotive and electronics manufacturing.