Wealth Management
Canadian National Railway Co. (TSX: CNR) has been served with a 72-hour strike notice by the Teamsters Canada Rail Conference (TCRC).
The Teamsters intend to strike as of 10:00 AM ET on Monday, August 26, 2024.
CN proactively ended the lockout of the Teamsters on August 22, following the Minister of Labour’s direction to the Canada Industrial Relations Board (CIRB) to impose binding arbitration between both parties.
While CN is focused on their recovery plan to get back to powering the economy, the Teamsters are focused on returning to the picket line and shutting down the economy, impacting people and jobs across the country.
Over the last nine months, CN has negotiated in good faith.
The Company consistently proposed serious offers, with better pay, improved rest, and more predictable schedules.
This latest development confirms that the Teamsters never took negotiations seriously and that they had no desire to reach a deal.
The impacts of this notice will depend on the timing of the CIRB.
It is in the national interest of Canada that the CIRB rule quickly, before even more harm is caused.
In 2023, the average conductor earned approximately $121,000, not including pension and medical benefits.
In 2023, the average locomotive engineer earned approximately $150,000, not including pension and medical benefits.
By combining Duty and Rest Period Rules (DRPR), paid sick days, personal leave days, and existing rest and vacation provisions in their collective agreements, conductors and locomotive engineers currently work approximately 160 days a year.
CN received an order from the Canada Industrial Relations Board (CIRB) imposing binding arbitration between the Company and the Teamsters Canada Rail Conference (TCRC).
The CIRB has also ordered that no further labour stoppage, including a lockout or strike, can occur during the arbitration process.
This means that the strike notice recently issued to CN by the Teamsters is now voided.
Hammond Power Solutions Inc. (TSX: HPS.A) announced their intention to increase their planned capital program by approximately $20 million over two years.
This new expansion will support Hammond’s power transformer portfolio of large, high-power transformers which are widely used in several commercial and industrial markets.
With this expansion, Hammond will shorten wait times and enhance their North American delivery platform.
Since 2022, Hammond Power Solutions has invested approximately $80 million in capacity increases for their entire product range, the most recent being our new facility in Monterrey to build small low voltage and power quality products, which opened at the end of the second quarter of 2024.
Speculative Investment
Anaergia Inc. (TSX: ANRG) through their subsidiary, Anaergia Technologies, LLC, has entered into an agreement to expand the scope of its long-term support contract with East Valley Water District (EVWD).
Under the terms of this amended contract, Anaergia will provide Operations and Maintenance (O&M) services for food waste procurement, processing, and power generation to the EVWD for their Sterling Natural Resource Center (SNRC) located in Highland, California.
SNRC, is a state-of-the-art wastewater treatment facility that recovers clean water, energy, and nutrients, from the wastewater.
It recoups value from the waste streams by utilizing a series of technologically advanced solutions.
These include Anaergia’s high throughput Omnivore™ Anaerobic Digestion system and AMR for nitrogen nutrient recovery which Anaergia delivered under a Design Build contract in 2022.
The facility currently has the capacity to convert up to 8 million gallons per day of wastewater and up to 130,000 gallons per day of imported organic waste streams, into three MW of renewable power for the facility, and clean water for replenishing the natural groundwater aquifer.
Annual revenues for operational support for the SNRC, including the additional O&M services under the amended agreement, are expected to be approximately $4 million.
This is Anaergia’s eighth O&M contract in the United States, and most of these relate to facilities that are in Southern California making us one of the largest operators of digestion and co-digestion infrastructure in this region.
It should be noted that this O&M activity is in line with Anaergia’s capital light strategy ensuring long-term revenues and exhibiting our capability to be a significant partner to wastewater utilities.
Avanti Helium Corp. (TSXV: AVN) announced a fully subscribed private placement financing of 2,000,000 units at a price of $0.25 per Unit for gross proceeds of $500,000.
Each Unit under the Offering will consist of one common share and one share purchase warrant, with each Warrant entitling the holder to purchase one additional share at a price of $0.30 per share for a period of one year from the date of issue.
Chris Bakker, the Chief Executive Officer and director, will be the sole subscriber under the Offering.
The proceeds of the Offering will be used for ongoing costs associated with projects and general working capital requirements.
DIRTT Environmental Solutions Ltd. (TSX: DRT) announced intention to make a NCIB for their 6.00% convertible unsecured subordinated debentures due January 31, 2026 and their 6.25% convertible unsecured subordinated debentures due December 31, 2026.
The NCIB is expected to commence on August 28, 2024 and terminate on August 27, 2025.
While DIRTT has not purchased any Debentures under a NCIB in the past 12 months, they completed a substantial issuer bid and tender offer for the Debentures on March 22, 2024, pursuant to which DIRTT repurchased $4,693,000 principal amount of the January Debentures and $5,775,000 principal amount of the December Debentures for cancellation.
European Energy Metals (TSXV: FIN) announced a non-brokered private placement of up to 16,000,000 units at a price of $0.125 per Unit to raise gross proceeds of up to $2,000,000.
Each Unit will consist of one common share and one half of a common share purchase warrant.
Each Warrant will entitle the holder to acquire one additional common share at an exercise price of $0.20 for a period of two years following closing of the Private Placement.
Fathom Nickel Inc. (CSE: FNI) provided results from the extremely successful June soil and rock geochemistry program completed at the 22,000+ ha Gochager Lake Property.
In overview, the results clearly demonstrate that the geochemical footprint of the Gochager Lake deposit has been extended by up to four kilometers along trend (approximately two kilometers in both the NE and SW directions).
Results from the pXRF analyses of outcrop chip samples and outcrop rock sampling has expanded the variable-textured gabbro footprint in the historic Gochager Lake deposit area, approximately 12.5 times.
Soil geochemistry results define a Ni-Cu-Co+Cr-Mg in-soil geochemical signal, analogous to the historic Gochager Lake deposit geochemical footprint, over an area of approximately 1.7km2; an area representative of 25 times the area of the historic deposit geochemical footprint.
Identified a very prominent linear trend of coincident and highly anomalous Ni-Cu-Co+Cr-Mg in-soils exceeding 600 m in length and up to 100 meters in width, indicative of a subsurface mafic - ultramafic source rock.
This identified trend occurs approximately 1.2km east-northeast of the historic Gochager Lake deposit and extends northeast towards Weaver Lake and remains open beyond the end of the zone of soil sampling.
One individual soil sample returned a very impressive 1,650ppm Ni, 116.5ppm Cu and 373ppm Co from a multi-station, multi-element, soil anomaly occurring approximately 1.0km west-southwest of the deposit area.
Green Impact Partners Inc. (TSXV: GIP) provided a summary of their second quarter 2024 results and key highlights to date.
Revenues increased by $2 million.
Adjusted EBITDA increased by $1.3 million.
Marksmen Energy Inc. (TSXV: MAH) has completed the closing of their previously announced non-brokered private placement of units.
They issued 19,325,000 Units at a price of $0.01 per Unit for aggregate gross proceeds of $193,250.
Each Unit is comprised of 1 common share and 1 share purchase warrant.
Each whole Warrant entitles the holder thereof to purchase one Common Share at a price of $0.05 per share expiring 2 years from the date of issuance, subject to acceleration provisions.
NorthWest Copper Corp. (TSXV: NWST) announced that as a result of increased demand, the non-brokered private placement financing previously announced on August 19, 2024 will now consist of up to 4,600,000 units at a price of $0.25 per unit for gross proceeds of up to $1,150,000.
Each Unit consists of one common share and one non-transferable purchase warrant, with each Warrant exercisable to purchase one additional Common Share for a period of 2 years from the date of closing at an exercise price of $0.30.
Proceeds from the Private Placement will be used primarily to fund general working capital purposes.
Charts of the Day
Markets
Uranium Supplies about to get tighter
With its H1/24 financial results, JSC National Atomic Company Kazatomprom (KAP) (IL: KAP) published the updated 2025 production guidance of 65.0-68.9 MMlbs, a substantial ~17% (~13.5 MMlb) reduction from the previous level of ~80.5 MMlbs (100% of subsoil use agreement levels). This was consistent with what we had been expecting (see note here) due to the ongoing challenges around sulphuric acid availability, delays at key development projects (e.g. Budenovskoye), etc. We note that UxC had been looking for a reduction to 68.5-72.5 MMlbs. For reference, this decrease is comparable to the largest operating uranium mines in the world (Cigar and McArthur each at 18 MMlbs, Olympic Dam at ~9 MMlbs).
We still see risk to KAP’s acid supply, noting that negations for 2025 are still ongoing, that requirements are increasing, and that KAP’s new acid plant will not reach run-rate until 2028 at the earliest (with expected construction completion having already been delayed to 2027 and with certain documentation still yet to be approved by the authorities). Currently, KAP appears to be importing from Russia only. Important to note, acid will not be supplied such that each mining entity (incl. the JVs) will produce at the same level relative to their subsoil use agreement (i.e. production will vary by mine between 80% and 100%).
We see further risk to Budenovskoye’s timeline noting that KAP has still not received approval from the government to construct the processing plant (limited quantities being processed at the nearby Karatau plant). This mine (the largest contributor to KAP’s growing production) was originally to produce over 10 MMlbs in 2025; however, KAP is now guiding for only ~3.4 MMlbs and is not expecting it to reach full production until at least 2027. Even when fully producing, the first 5-years of production at the mine are reserved for Russia.
Due to this, and perhaps equally important as the 2025 guidance cut, KAP will be amending several of its subsoil use agreements in order to account for lower production going forward (i.e. in order to avoid penalties for producing below 80% of the previous agreements).
We can see in Figure 1 that expected production per the amended agreements is lower than previous until at least 2028. KAP has withheld issuing 2026 production guidance until this time next year due to the "high level of uncertainties related to the sulphuric acid availability and construction delay challenges".
KAP expects to replenish its inventories by end-of-year and stated that it does not expect to make spot purchases to fulfill its sales commitments. However, we note that attributable inventory levels are down 31% year-over-year (to multi-year lows).
"Lower for longer" production from the world's largest uranium producer continues to highlight the tightness of near-term supply, which should continue to provide a tailwind for uranium prices and equities (within a concentrated market, where >60% of primary supply is Kazakh + Cameco). We think further downward revisions of Kazakh production are very possible (potentially more positives for the sector ahead), but at the same time remind that KAP is among the highest-quality (and most attractively valued) uranium producers. We continue to highlight Canadian developers/explorers which we believe are the best positioned due to the geopolitical situation and quality of their projects.
Canadian Lifeco's versus Canadian Banks
The Canadian lifecos continue to have solid capital levels and in turn are returning capital to shareholders, a key differentiator for the lifecos relative to the banks in our view. The lifecos disclosed excess cash available at the holding company level: GWO holds $1.0 billion (~3% of total equity), IAG holds $1.1 billion (~15% of total equity), and SLF holds $2.0 billion (~8% of total equity) as of Q2/24.
All the lifecos in our coverage are actively buying back shares; in 2024, we model IAG and MFC with a relatively high level of capital return to shareholders, and as a proportion of net income, we believe both will likely be over 100%.
We continue to favor the Canadian lifecos over Canadian banks. For 2025, we model stronger median core EPS growth of ~11% for the larger Canadian lifecos under our coverage versus ~8% median core EPS growth for the large Canadian banks we cover.
In the current environment, we believe the lifecos are less risky than the banks as we view credit risk in a recessionary scenario as a key risk for the bank group.
We see low double-digit returns to our target prices for the Canadian lifecos as median BVPS growth is ~8% for the next 12 months and we expect limited multiple expansion. The custom Canadian lifeco index (a custom index that only includes the larger Canadian lifecos in our coverage weighted by market capitalization) is trading at 1.61x, above the average since 2009 of 1.38x and the Canadian banks' P/B multiple of 1.48x.
Since 2000, the custom Canadian lifeco index has traded as high as 2.60x and as low as 0.90x, and the 1.75x midpoint of this range is higher than current valuations. A market cap-weighted target P/B multiple is 1.67x, also higher than current valuations.
Economics
US Durable Goods orders rebounded nicely in July
New orders for manufactured durable goods in the US increased $26.1 billion or 9.9% to $289.6 billion from the previous month in July of 2024, making up for the downwardly revised 6.9% decline in the earlier period, the most since May 2020. The result challenged the growing pessimism over manufacturing activity in the United States, suggesting the current slowdown may be temporary.
Orders were mainly carried by a surge in transportation equipment (+4.8% to $102.2 billion), driving total orders when excluding transportation goods to log a slight decline (-0.2% to $187.4 billion). In the meantime, orders also rose for fabricated metal products (0.2% to $36.3 billion) and defense aircraft and parts (12.9% to $5.5 billion).
On the other hand, orders fell for computers and electronic products (-0.7% to $24.9 billion) and primary metals (-0.9% vs $24.5 billion).
Excluding defense goods, durable goods orders surged by 10.4%.
Leede Insights is general market commentary that does not constitute a research report of any company. The views or opinions expressed represent the personal views of the writer, are subject to change without notice, and do not necessarily reflect the views of Leede Financial Inc. (“Leede”)
The information provided has been compiled from sources we believe to be reliable, however, we make no guarantee, representation, or warranty, expressed or implied, as to the accuracy or completeness. Leede does not assume any obligation to update the information or give a description of further developments relating to the securities or material discussed. Nor is it an offer to sell or the solicitation of an offer to buy any securities. It is intended only for persons resident and located in the provinces and territories of Canada where Leede is registered. This report is not intended for distribution to, or use by, any person or entity in any jurisdiction or country including the United States, where such distribution or use would be contrary to law or regulation or which would subject Leede to any registration requirement within such jurisdiction or country. Leede its officers, directors, agents, employees and families may from time to time hold long or short positions in the securities mentioned herein and may engage in transactions contrary to the conclusions in this newsletter. Leede may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this newsletter.
This communication shall not be distributed or duplicated in whole or in part by any means without the prior written consent of Leede.
Leede Financial Inc. is a Canadian based independent, full‐service investment firm and is a member of Canadian Investment Regulatory Organization (CIRO), and a member of the Canadian Investor Protection Fund (CIPF).
Comments