With the NZX down 246 points or 2.2% atm and power company shares in particular whatsup ?
Contact down 9.7%
Genesis down 4.9%
Mercury down 8%
Meridian down 8.2% !
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With the NZX down 246 points or 2.2% atm and power company shares in particular whatsup ?
Contact down 9.7%
Genesis down 4.9%
Mercury down 8%
Meridian down 8.2% !
I know! Just asked the same question on the CEN thread.
in case you missed it
Owners of Tiwai Pt aluminium smelter seek talks with the Government, raising possibility of closure
https://www.nzherald.co.nz/business/...ectid=12278907
thats why all the gentailers are crashing
https://www.stuff.co.nz/business/116...elter-in-bluff
This is whats up - would dramatically cut revenues/cashflows
Even a 'renegotiation' (best case scenario) could cause revenues/cashflows to stagnate = dividends no longer expecting to increase at or above inflation (and possibly even decrease) = very, very bad for companies that are valued basically off being a dividend payer (as they are overvalued to ridiculously overvalued, depending on the gentailer, on any other metric other than yield)
I have never taken much notice of the Morningstar recommendations, but they have a big red SELL on MEL
They've had a long run of good performance so I'm not that worried about some adjustment to valuations.
I'm more concerned about local economic factors like long running under-target CPI, low business confidence, low impact fiscal policy and RBNZ not having many bullets left. Tiwai alone isn't a high impact event but the cumulative pressure may cause a downturn.
Rio Tinto having a go again can’t blame them with JK chucking them cash a few years ago. The reality is closing the smelter would cost a load and it’s still profitable at these prices
Tiwai comes up every few years - it always gets sorted
No need to worry ...or panic.
Fairly certain unless they bought in the last few months they would still be laughing all the way to the bank let’s see how the shares trade going forward ....
Good to see some common sense from a well respected institution https://www.harbourasset.co.nz/resea...smelting-away/
International investors looking for a good deal regarding CEN SP. Currently well below last GS TP $8.40 (AUG)
CEN or MCY possible inclusion into Sept MCSI index replacing FBU ...........??
"Contact is currently presenting to international investors in Singapore, Tokyo, Frankfurt, Zurich, London, Boston and New York. This presentation has been re-issued with minor changes to pages 22 and 41 to provide clarity around the calculation definitions and added the source references to information presented."
For anyone interested in hearing some information from the horses mouth, Meridian held an investor call yesterday. You can listen to it here https://www.meridianenergy.co.nz/investors
Hope never to check either of them myself, but he showed all the balls of a gelding when he folded to Rio's "Bluff"
if you think the smelter wont close , good opportunity? rates are not going higher anytime soon
Just listened to the investor presentation....Well worthwhile if you have the time.
I was impressed by Neal Barclay.
As an aside, but nevertheless interesting, everyone asking questions was male.
Thanks, long time lurker!
Cliff notes of the call:
- Meridian not going to "bend over" and take a hit for the rest of the market (those were the CEO's words not mine).
- Sounds like Meridian do pretty extensive modelling to determine the financial position of the smelter and they believe it is cash flow positive at the current Alu prices.
- Big lump of CAPEX ($63M) required to continue operation of one of their pot lines. Meridian seem quite skeptical at the quantum of CAPEX required and to a lesser extent the timing.
- Around $110M of spend by Transpower required on lower south island grid improvements to allow the power to get out of Southland (this impacts both Manapouri and the Clutha stations). Then an additional $150M required to upgrade the HVDC link. Timing would be ~3 summers for lower south island upgrades and 5 years for HVDC upgrades. During this time the effect on all south island generators would be quite heavy with the stations further south effected the most.
My take is this is just posturing by Rio Tinto to get a better deal. They are not going to shut down a factory that makes money. Time will tell (lets see how well this post ages!).
https://www.marketscreener.com/MERID...933/consensus/
Analysts fair value of $4.28 before this latest announcement by Rio Tinto. I think its clear the risk profile has changed and MEL will cop the most "treatment" if Rio Tinto pull the plug as it will take many years to divert the power north. Time will tell. $5 looks full value to me in this current landscape of heightened risk and uncertainty.
k14 - Keep posting mate, I'm liking the effort you make to share your point of view. I agree its unlikely that Rio will pull the pin but what is clear is that they want a better deal which will cost someone a lot of annual earnings, probably MEL. Rio seem very unhappy about transmission pricing and I don't think Transpower's review of their pricing model is helpful enough. Despite Labour's massive surplus I don't think they are of a mind to be helpful either.
Normally I would say site make good costs would make a favourable resolution more likely but if they're up for ~ $60 capex to overhaul one of the pot lines, then that's also a factor that makes the outcome less certain.
Good to see Rio Tinto back for their regular top up of corporate welfare. Nice work if you can get it. Govt really needs a long term plan to reduce the effectiveness of this negotiating tactic.
FWIW, MoaningStar downgrades big time, cites Tiwai effect.
Moaning Star Ratings 23/10/2019
$ at posting MS $Value Reco % diff $ diffGNE $ 3.07 $ 2.40Reduce 22% $ 0.67MCY $ 5.04 $ 3.90Reduce 23% $ 1.14MEL $ 5.00 $ 3.70Sell 26% $ 1.30TPW $ 8.40 $ 6.30Reduce 25% $ 2.10
Market doesn't like uncertainty. So from now, till March when the review is out, the SP for the power shares ain't looking too bright. If going purely for the div, I would rather opt for HLG.
I don't put much stock in moaning-blackhole but the point is that its highly likely that most of the true professional analysts will be downgrading for the significant extra risk and all the gentailiers have enjoyed an exceptional run.
Holders that paid near $5.50 are in for a whole lot of pain, capital loss will make divvies look miserable (Been there done that) PS-If it looks and smells overcooked then it is overcooked.
Like some other share at $18 eh mate...oh wait, that share pays no divvies to ease holders pain :p
Anyway...aside from the fundamental change in the risk landscape its well worth noting that CEN, GNE and MEL have all broken down through their 100 day moving averages. For what its worth TPW and MCY haven't.
Tiwai have exceptional security of supply and that requires a lot of xtra transmission assets specifically put in for them. They pay 5.5c/Kwh which must be about cost for energy and should not get reductions for transmission. They have to be faced down. Their profit all depends on the bauxite price which they control so it is a question of transfer pricing . This is written by an x TP CEO and senior manager of NZED in Dunedin who had a lot to do with Comalco . Remember Muldoon doubled the price a long time ago . You have to be tough with them.
Rio Tinto talking tough https://www.nzherald.co.nz/business/...ectid=12279394
With all the Council's declaring Climate "Emergencies" if Labour/Greens return it might be an opportunity for them to turn off fossil fuels too. If the children mining the cobolt can keep up we could all be electric in no time.
Sorry I can't find the link to the article yesterday, I did try. The nub of the issue is that Rio believe the $66m they pay in transmission costs each year, (which absolutely dwarfed their net profit) is more than than the total capital value of the transmission assets used. I have no idea as to the validity of their claim but its not far as the crow flies from Manapouri to Invercargill and if there is substance to their claim that they are effectively paying more than the capital value of the asset every single year just to use it, then obviously that's a completely absurd situation. Rio went on to say in that article that their transmission charges are ten times higher than the average for other smelters around the world. On the face of it you have to wonder a bit if the transmission pricing review, (which will grant them as I understand it, about $11-12m relief per annum next year and a similar amount again on top of that per annum from 2024, went far enough and was fair ?
Yeah but the problem is that Tiwai rely on more than just the assets from Manapouri to Tiwai. For example, if there was an issue with the lines to/from Manapouri, or if there was a temporary issue with Manapouri output itself, Tiwai would still be handily supplied by power from elsewhere on the grid. When the South Island experiences sustained dry hydro conditions, power flows south from the North Island to supply Tiwai and other South Island consumers. Their arguments seem clear and simple until you look at it more closely and realise that they are beneficiaries of an interconnected grid. If this were not the case, Tiwai would be free to purchase the assets between them and Manapouri and disconnect themselves from the rest of the grid. In fact, the Electricity Industry Participation Code allows for discounted transmission charges if you could prove this ability to go "off-grid". The fact that Rio have not even remotely suggested this as a possibility kind of proves my point.
One further point - if they do decide to cease operating the smelter, it's not as simple as just walking away. If I remember correctly the exit costs are quite substantial (tens, if not more, of millions) - there's a fair bit of remediation work they need to do on the site. I stand to be corrected on this though as I am not an expert on the resource consents and such that they operate under.
Fair enough AirwOlf, its certainly a complex situation. The Government probably need to have a think about the bigger picture and what the cost is if a fair percentage of those 1000 workers end up on a benefit. Maybe some pragmatism is called for ?
Its an old article from 2015 but states the then past clean-up cost estimate was $200 to $400m. Add at least another 5-years of inflation and these are probably on the low side.
http://www.stuff.co.nz/business/indu...-district-plan
I am pretty sure Rio will have a very different viewpoint on the cost of the minimum amount of site rehabilitation that is legally required.
This isn't their first rodeo in that regard.
Interesting point. What about the 500 workers at TV3 that end up on a benefit... more pragmatism and government intervention called for? Or is that different? Not that I do not want the smelter to carry on but sometimes we need to look at the bigger picture I feel. 1,000 jobs gone yes, but for the rest of NZ it will be a windfall in lower power prices etc and it means NZ inc will have more energy resource to supply anticipated increase in demand (that is contingent on energy being able to be transported North from Manapouri)
Good point blackcap. Where do you draw the line in the sand ?
Dairy farmer spokesman on radio said collectively dairy farmers use more electricity than Tiwai and its one of their biggest input costs blah blah .....do they get government assistance?
Drought relief when required. Payments to the income equalisation scheme allowing spreading of income. R&D tax credits.
Herd scheme stock valuation methodology that allows farmers to use stock values from 30 years ago, (who else can do that ?).
Only 5% of emissions will be included in the emissions trading scheme. I am sure I have forgotten many other forms of assistance.
Level playing field or does Govt pander to some forms of business because its politically expedient to do so ?
Believe me Tiwai use transmission assets at Dunedin, North Makerawa , and lines from Twizel to Invercargill at least. The story they are putting out is false . They deliver no benefit to NZ and should have been gone years ago. The price they get energy for is cost and they cannot exist on Manapouri generation alone.
Perhaps southland can be the first to start using electric cars when Tiwai closes down. This could be a good thing for NZ.
I just assumed Winner was joking when he asked that question :)
A little bounce for Genesis today so I took the opportunity to reduce my holding just a tad. I've sort of got it to that level that if Rio stays, that's great. If it doesn't, well at least I reduced a little and no hard feelings (I also own Rio Tinto directly). This approach means that I don't have to get all hot and bothered waiting until March next year.
I see my Devon Alpha fund has a swag of CEN - will be interesting to see what approach Devon takes on this.
I'm guessing the Government will do whatever it takes to Keep the smelter going. Losing 1000 jobs in Southland in an election year and the immense hit to Kiwisaver accounts (a lot of basic kiwisaver accounts have far too much in NZ shares and therefore far too much exposure to the gentailers) will give the Government plenty of incentive to sort this.
Tiwai uses about 13% of our national generation 24/7, 365 days a year, EVENLY. Peak to trough ratio 1 to 1. How on earth are we going to turn that into domestic consumption that sucks most of it between 5Pm-8Pm each day, peak to trough ratio something like 1 to 6 ? We need big steady users like Tiwai or we will pay dearly for the transmission.
Hi iceman, the NZ dairy industry uses a lot of large coal boilers to create heat for the milk powder production, I would think that a lot of Tiwai's electricity use can be consumed by new replacement electrical boilers.
They are also likely to run 24 hours a day. The Dairy industry would love cheaper clean energie.
Thanks for posting Beagle. Found this interesting ...."S&P Global Ratings said Genesis Energy and Contact Energy would face a higher degree of risk because of their exposure to thermal generation, while Meridian Energy and Mercury NZ would face less risk given their portfolios fully consist of renewable generating assets."
I think many people, myself included forgot about the risk of the gentailiers with Rio's right at any time to pull the plug with 12 months notice.
What I also didn't realise because I got so lazy with the predictable steady rise of these shares was that since a year ago when for example MEL was $3.10, was that at the peak of $5.54 in early September the shares were up a whopping 79% plus dividends for a total shareholder return of approx. 85% in just the last year, on top of good gains in previous years.
I think people, (myself included) have really flocked to the gentailiers as a haven of safety in such uncertain times. Some REIT's like GMT for example are also trading at extraordinary premiums of circa 30% to their NTA based on a what is probably a perception of real safety.
Food for thought...What happens to REIT and Utility prices if there's no recession and China and the USA reach a trade deal and growth and risk are on again and interest rates rise... What happens if Rio really does pull the plug this time ?
There was no point in selling while they were in a clear uptrend.
I prefer GNE and MEL shares to holding bonds.
The future of electricity looks sound in NZ.
Manapouri is a great asset for MEL and NZ.
Yeah they have been a great bond alternative and I think a lot of people have viewed them as such and invested on that basis but long dated bonds can go down in value as interest rates rise, and so can the gentailiers. Been a fantastic run this past year especially and still could be going forward but its less clear now which way they will go in the next 12 months, in my opinion.
Agreed Percy, Manopouri is a very special place. I've done the doubtful sound full day tour and highly recommend it for anyone wanting a taste of this wonderful place https://www.realjourneys.co.nz/en/de...und/more-info/ Not sure if they still go down into Manopouri power station to see the generators at work or not, anyone know ? but that was a real treat as was doubtful sound and lake Manopouri is absolutely awesome too, possibly the best part of the trip. Not cheap but a trip well and truly worth doing !
We did a half day tour about 10 years back which included going down the underground power station access road to a viewing point of the generators/turbine shafts.
Not near as exciting as when I was about 12 and Dad worked for the NZED and on a South Island holiday we were able to travel to the power station on the workers boat and wander around on the generator floor. No H&S issues then!
Today's announcement from bauxite producer Metro Mining [MMI.asx] gave a positive outlook for bauxite.In fact they are looking to ramp up their production.
So perhaps Rio are playing games.?
No, they no longer take the tours into the powerhouse at Manapouri. Stopped in 2015, after concerns from Worksafe.
Interesting article here https://www.odt.co.nz/regions/southl...ts-engineering
Out of a mixture of ignorance and idle curiosity, when the Bluff smelter does finally close, does the Manapouri power plant have a future as a big wet storage battery, able to balance the load or take up the slack on calm days when all those clean green windmills aren't turning?
If it does, then would Meridian be the right entity to own it?
They most assuredly do, percy.
But at the end of the day, the current configuration of the New Zealand electricity network, environment, and market is the result of a series of political decisions.
And what the Minister giveth, the Minister may also take away.
There's that quote from a British PM (Wilson, I think) - "A week is a long time in politics" - so a thousand years may be slightly on the optimistic side.
We are starting to see emerging signs of optimism (yes again) over a possible trade deal between the US and China. Time will tell on that front.
S&P 500 hit an all time record and various experts on CNBC reported they now see the possibility of a recession in the US in 2020 or 2021 as slim.
10 year US govt stock rate up 10 basis points overnight and a breakout from the recent low range.
Its could be an interesting few months ahead for the power shares if defensive shares are no longer flavour of the month, (year ?), and with Rio's feral approach and all.
Some have had a truly fantastic run (total shareholder return for MEL was about 85% for the year to early September) and it would appear to be (at the very least) time for a breather.
If interest rates were to go up, what other shares would be worth looking at to replace these power shares?
HGH, AIR, BRM, HLG...all are under consideration by me for additional investment, well perhaps apart from BRM which I have truck loads already.
ZEL maybe too but wait for the Govt completed fuel study in early December.
https://www.stuff.co.nz/national/pol...onsensus-grows
Even though I hold power company shares, wholeheartedly agree that it's time to shut Tiwai Pt down.
$200m for building and upgrading transmission lines to grid the power up north is nothing. - NZ spends $600m a week on social welfare payments and services.
A key question is whether TiWai have to pay for the write off of the transmission assets put in for them. North Makarewa Sub, Tiwai Sub, a double circuit transmission line from Tiwai etc.Has Transpower thought about it or does the NZ taxpayer and consumer pay.?
My guess at this stage is it will come down to the Nov 2020 election and the campaigning leading up to this. Southland is a National supporting electorate. Labour therefore has less to lose by not coming up with some sort of support package. Can either main party gain or retain enough votes to be worth supporting or in some backhand way engineering a deal that has the smelter stay?
Come to Auckland and see how resource consent is not an issue with the super disruptive infrastructure works being undertaken all over the freaking city.
In the name of upgrading thoroughfares close to where I live, properties have lost half their backyards and some of these properties are up on hills.
mercury were saying the aluminium people are sabre rattling and they dont see them closing anytime soon but may in the future one day.
It's gonna close at some stage in the future, but given the reported profit last year, hard to see why they would be in a hurry. OK, aluminum prices are down, but currency is better but they're having another crack at the taxpayer and the Gubermint via power/transmission companies. There are ups and downs like most businesses, but should be able to ride it out for a while.....especially in the light of $200m+ remediation costs. Not to mention labour/redundancy costs.
https://www.newsroom.co.nz/2019/06/0...ts-207m-profit
Its not $30,000 per job. It seems widely accepted that the smelter is responsible for about 1000 employees and another 2,000 contractors and employees of other business's that rely on the smelter for their income. So its really about $10,000 per family as a one-off grant from National that supported families for many years now, much cheaper than the unemployment benefit which is a recurring benefit not a one-off. I wonder how these families who enjoy housing at some of the cheapest prices in New Zealand will cope having to shift elsewhere ? 3,000 families deeply affected....hmmmm, that's pretty significant !
Secondly it won't be anything like as cheap as $200m to upgrade the transmission lines. That was a 2012 dollars estimate and that doesn't take into account the upgrade in transmission line between the south and north island. I think the true cost is likely to be much higher.
I have seen 2-3 studies on the benefit to NZ of Tiwai. All have been negative for NZ. Get rid of it.
https://www.stuff.co.nz/national/pol...onsensus-grows
This quote made me laugh. "..investors who bought shares in the power companies partially privatised by the previous government would be burnt badly". Even today, even after the announcement, we've all still made a ton of money and people could lock in profits now if they want. So, badly burnt really doesn't apply. I mortgaged my house to the tune of $240,000 to buy power shares (something I won't do again!). It just seemed like one of those one in 30 to 40 year opportunities like when Labour privatized Telecom. I've recently reduced my position :)
I'll keep my more modest Genesis holding for some years yet, regardless of Rio Tinto. This Labour Government's oil and gas policy has made Kupe a more valuable asset. Sadly I sold my CEN shares before they really took off over the last year. Oh well, it wasn't actually my money anyway and I felt I should give it back to the bank.
Yes Bobdn it makes you wonder how such uninformed people get to write major articles in our main newspapers !
Recent investors will be burnt, fair comment for those poor suckers.
Can't see how " "recent investors" can be classed as " investors who bought shares in the power companies partially privatised by the previous government would be burnt badly". Stretching it a bit there me thinks.
If ever there was a time to close down Tiwai, it is now when NZ is enjoying full employment and there are employers screaming out for workers.
Also, there are 235,000 migrant workers on temporary work visas - the Tiwai affected workers will be absorbed into the workforce in no time.
As for the usual pathetic stories about them having to retrain or relocate elsewhere, tough cheese - most of us in our life time have had to do that to better our prospects - sometimes to other countries.
When the car assembly industry in NZ was shut down over the 1990s, there were cries of anguish that the tens of thousands employed were doomed forever. Did not turn out that way and NZ benefited as consumers did not have to pay horrendous prices for poorly assembled cars from a protected industry.
Same thing will happen with Tiwai closure - rest of the country will get cheaper electricity and businesses will become more competitive.
BTW - I do own power company shares.
Interesting Balance but not sure it is that simple. Tiwai doesn't just employ an ex number of people. They provide a significant economic boost to a geographical area that is under utilised but contributes a significant amount to our national economy, from agriculture, fishing. and natural tourism. It also helps maintaining a reasonable population in the area, to support the vital primary industries down there.
You say power will become cheap for Kiwis if Tiwai closes, but transporting all that electricity to the top of the North Island where you and Beagle live, from our environmentally friendly production in the South Island is expensive and would require a lot of money spent on upgrading transmission infrastructure in a safe and efficient manner. We do not want to end up like California that has annual fire disasters largely due to old, outdated and inefficient electricity infrastructure due to the population having grown to fast in relatively small geographical area far away from electricity generators.
After spending the last couple of weeks in the crazy and stupid mess that is Auckland roading today, I personally think we should adjust our immigration laws to make the top of the North Island out of bounds for immigrants and send them down south for at least the first 5 years of their residency in NZ and allow them to buy only fully electric cars. Minimal time travelling to work (no traffic jams) and close to a huge source of cheap and environmentally friendly power supply and ample opportunity to work in primary (natural) industries. Ship them in from countries that are largely producing electricity from coal and we have done our bit for the environment.
Also make it a condition of residency permit that a couple have only 2 children, to avoid unnecessary consumption and emissions.
I digress :-)
Agree with you re Auckland and immigration policies - if only it is possible and as simple in the real world to attract quality migrants to live in Southland!
As for infrastructure upgrade, it can be done and we should not wait for a crisis like when Auckland nearly ran out of power in 1998* to put in the transmission grid.
*https://www.nzherald.co.nz/nz/news/a...ectid=12033654
Interesting perspective Balance thanks for sharing your viewpoint. Bogey in the room we haven't talked about is transmission losses. Even if the ALL the infrastructure was put in place to transport Manopouri power to Auckland what percentage gets lost in transmission losses ?
Agree Iceman, Auckland roads are diabolically bad.