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FANG stocks’ bite has U.S. fund managers looking for alternatives

NEW YORK (Reuters) – Fund managers have begun to ditch so-called FANG stocks that powered the U.S. stock market to record highs in January and are slowly rotating into commodity-related shares and other value stocks which typically outperform in late-cycle recoveries.

A specialist trader works at his post on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., March 22, 2018. REUTERS/Brendan McDermid

Portfolio managers holding shares of Facebook Inc, Inc, Netflix Inc, and Google-parent Alphabet Inc say they are increasingly concerned that the data scandal that has sent shares of Facebook down nearly 15 percent year-to-date will spill over into all of the FANG stocks, imperiling the broad market’s momentum at a time when there are no clear companies or sectors to take their place.

On Tuesday, an index which tracks the FANG stocks along with six other mega-cap technology stocks tumbled 6.3 percent, the biggest decline since September 2014.

Facebook rose as much as 1.5 percent in early trading Wednesday before falling into the red, one day after sources told Reuters that chief executive Mark Zuckerberg plans to testify before Congress. dropped 4 percent, while Netflix fell 5 percent. Google-parent Alphabet was slightly positive.

“There are legitimate concerns over the business models of these companies, and I expect that they will be ironed out in legislation” that will likely eat into their profit margins, said Michael Cuggino, a portfolio manager of the $17-billion Permanent Portfolio funds.

Cuggino, who would not say whether he was selling any of his shares in Facebook, said that commodity and industrial stocks look more attractive now given rising inflation and continued global economic growth.

Each FANG company rose more than 33 percent last year, helping power the SP 500 to a nearly 20-percent gain. Yet those gains have left the broad SP 500 trading at a high trailing price-to-earnings ratio of 21.7, leaving it overpriced despite a boost to margins from the Republican-led corporate tax cut at the end of 2017.

“Rising volatility and changing market leadership are now pointing towards the possible conclusion that the stock market peaked in late January 2018,” said Douglas Kass, president of Seabreeze Capital Management.

The SP 500 is now down 2.2 percent for the year, and down nearly 10 percent below the high of 2872.87 it reached on Jan. 26.

A 3D-printed Facebook logo and Like are seen in front of displayed stock graph in this illustration photo, March 20, 2018. Picture taken March 20. REUTERS/Dado Ruvic


Fund managers say that the high valuation of FANG stocks and the likelihood of regulation are pushing them into traditional value stocks like energy and defense companies.

Connor Browne, a portfolio manager at Thornburg Investment Management, said that he sold his shares of Netflix and last year after both companies blew through his price targets. He used those gains instead to increase positions in energy stocks such as pipeline operator Enterprise Products Partners LP and crude oil shipping company Overseas Shipholding Group Inc that stand to benefit from the recovery in the price of oil.

“We noticed that in all of this excitement over the FANGs taking over the world, there are parts of the economy that seem really out of favor and offer more compelling opportunities,” he said.

Even after the selloff, FANG stocks continue to trade at higher valuations than the broad market. Netflix trades at a P/E of 210 and trades at a P/E of 327. Facebook and Google-parent Alphabet, both of which have been directly linked with privacy concerns, now trade at valuations near 52-week lows.

The overhang of increased government oversight has sunk the fortunes of large technology companies in the past. Microsoft Corp reached a settlement in an antitrust case with the Department of Justice in 2002 that lasted until 2011, contributing to a long period of underperformance that kept the stock below the high it reached in 1999 until 2016. Since then, the stock is up nearly 60 percent on the strength of its cloud-based services.

Margaret Patel, a senior portfolio manager at Wells Fargo Funds, said that she has been adding to defense stocks like Raytheon Co that should benefit from increasing military spending in both the U.S. and overseas. At the same time, she is increasing her exposure of non-FANG technology stocks like Adobe Systems Inc and Microsoft that have been hurt by the recent sell-off in the sector.

“It’s very hard to see another sector that still has all the fundamental drivers for growing much faster than any other sector,” she said.

Reporting by David Randall; Editing by Jennifer Ablan and Nick Zieminski

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Five key takeways from Canada’s new mine approval process

In February 2018, after years of political promises and consultation processes, Canada’s federal government introduced a new assessment regime that would apply to mine projects. If passed, a new Impact Assessment Act (IAA) will replace the existing Canadian Environmental Assessment Act, 2012 (CEAA 2012).

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Facebook tweaks privacy tools to ease discontent over data leak

(Reuters) – Facebook Inc (FB.O) has adjusted privacy settings to give users more control over their information in a few taps, it said on Wednesday, after an outcry over a whistleblower’s allegations that members’ data was used to sway the 2016 U.S. election.

Figurines are seen in front of the Facebook logo in this illustration taken March 20, 2018. REUTERS/Dado Ruvic

It put all the settings on one page and made it easier to change and more straightforward to stop apps using data. Until now changing settings had been complex, spread over at least 20 screens, which had frustrated users.

The world’s largest social network said in a blog post it had been working on the updates for some time but sped things up to appease users’ anger over how the company uses their data and as lawmakers around the globe called for strong regulation.

“Last week showed how much more work we need to do to enforce our policies and help people understand how Facebook works and the choices they have over their data,” Facebook wrote in the blog post on Wednesday.

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Facebook’s shares were up 1.2 percent at $154 on Wednesday. They are still down almost 17 percent since March 16, when Facebook first acknowledged that user data had been improperly channeled via a third-party app to political consultancy Cambridge Analytica, which was hired by Donald Trump’s 2016 presidential campaign.

The data leak has raised investor concerns that any failure by big tech companies to protect privacy could deter advertisers – Facebook’s lifeblood – and lead to tougher regulation.

A Facebook logo reflected in the eye of a woman is seen in this picture illustration taken in Skopje November 6, 2014. Picture take November6. REUTERS/Ognen Teofilovski

Analysts said the revamps Facebook rolled out on Wednesday looked more like tweaks than big changes, making data management more transparent rather than changing the way the company does business.

“It doesn’t seem that the changes that have been proposed are particularly meaningful,” Pivotal Research Group analyst Brian Wieser said. “There are several problems and one needs to address operationally what Facebook is doing to provide confidence that personal data is protected.”

Facebook Chief Executive Mark Zuckerberg has repeatedly apologized for the mistakes the company made and has promised to crack down on abuse of the Facebook platform and restrict developers’ access to user information.

The changes Facebook announced on Wednesday let users add more layers of protection, control what they share and delete it if they want to, control the ads they see, and manage who sees their posts and profile information.

There is also a new page – Access Your Information – where users can see the information they’ve shared and manage it.

“The biggest difference is ease of access in settings, which fulfills Mark Zuckerberg’s promise to make the privacy process and permissions more transparent to users,” Wedbush analyst Michael Pachter said.

It was uncertain whether the changes will satisfy lawmakers.

They were announced ahead of a stringent European Union data law which comes into force in May. It requires companies to give people a “right to portability” – to take their data with them – and imposes fines of up to 4 percent of global revenue for companies breaking the law.

Lawmakers in the United States are still clamoring for Zuckerberg himself to explain how users’ data ended up in the hands of Cambridge Analytica.

He plans to testify before Congress, a source briefed on the matter said on Tuesday. Facebook has said it has received invitations to testify and that it is talking to legislators.

Zuckerberg and the CEOs of Alphabet Inc (GOOGL.O) and Twitter Inc (TWTR.N) have been invited to testify at an April 10 hearing on data privacy. The U.S. House Energy and Commerce Committee and U.S. Senate Commerce Committee have also asked Zuckerberg to appear at a hearing.

The U.S. Federal Trade Commission has opened an investigation into Facebook and attorneys representing 37 states are also pressing Zuckerberg to explain what happened.

Reporting by Julia Fioretti; Additional reporting by Laharee Chatterjee and Arjun Panchadar; Writing by Susan Thomas; Editing by James Dalgleish

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Asiamet flags high-grade BKZ intercepts

BKZ is less than 800m from the BKM copper project, which the company is currently carrying out a feasibility study on, but the earlier-stage asset is gaining investor attention for its variety of rich base and precious metal mineralisation.

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MICROMINE to issue latest version of 3D modelling …

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Amerigo sitting pretty on vast copper resource

Amerigo sitting pretty on vast copper resource

The latest infill results have, again, shown why investors would be interested.

Broad intervals of high-grade massive sulphide mineralisation were intercepted in the upper polymetallic zone and included 42m at 6.9% Zn, 2.8% Pb and 31g/t Ag from 26m depth. This also included a 10m length averaging 16.5% Zn, 8.2% Pb and 65g/t Ag from 28m.

Assays going into the lower zone came back with a notable 67m interval at 1.3% Cu and 10g/t Ag from 52m, displaying just how rich the deposit is at various depths.

The company plans to publish a mineral resource estimate for both mineralised zones at BKZ in May.

CEO Peter Bird said BKZ had advances from a “promising target” to the cusp of maiden resource status in just six months. 

“Asiamet is very excited by these recent results and looks forward to delivering further value from the exploration and development of its assets at a time when quality copper and base metals projects are in short supply,” he said.

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Nemaska closes in on Whabouchi financing

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Strike at Iron Ore Company of Canada

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"This represents both the main upside and downside risk for Glencore"

Wood Mackenzie said the US$1.7 billion price tag was at a 41% premium to its valuation for Hail Creek. It assumed a zero valuation for the Valeria project.

The premium paid implied a long-term benchmark hard coking coal price of $146 per tonne and a benchmark thermal coal price of $83/t, signalling confidence in higher for longer prices.

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Amerigo sitting pretty on vast copper resource

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The inclusion of Hail Creek is expected to boost Glencore’s met coal output by 67% from 2017 to 15 million tonnes in 2019, although this volume excluded the impact of not-yet-finalised deals relating to its Coal Allied 49% Hunter Valley Operations acquisition and the sale of Tahmoor in New South Wales to the GFG Alliance.

Hail Creek produced 5.25 million tonnes of hard coking coal in 2017, of which Rio’s share was 4.3Mt. 

It pointed out that the company’s hard coking coal production profile had been declining after the closure of the Oaky No. 1 mine last year, the winding down of coking coal production from the Newlands Coal assets in Queensland and the sale of Tahmoor.

The acquisition would also add marginal volume to the miner’s Australian thermal coal output, with Hail Creek producing a high-ash (25%) product.

Thermal coal production from Hail Creek in 2017 was 4.1Mt, of which Rio’s share was 3.4Mt.

“It also offers a longer-term opportunity to develop Valeria as a replacement for its Clermont thermal coal mine which is estimated to close in 2026,” WoodMac said.

The consultancy noted the deal would increase Glencore’s margins, with it estimating a total average post-deal margin of $64/t for met coal and $37/t for thermal coal in 2018.

“Even though we estimate Hail Creek to lie within the fourth quartile of the seaborne metallurgical coal cost curve, it attracts a very good return due to its high quality,” it said.

WoodMac pointed out that the mine’s high-ash thermal coal attracted a healthy margin because it only had processing and re-handling costs, with no mining costs associated with this product, which was derived from coarse plant rejects.

“The value of the assets is highly sensitive to price and this represents both the main upside and downside risk for Glencore,” WoodMac said.

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NuLegacy drilling hit by snow showers

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Georgian investors react to management changes

Other changes will see non-executive director and former Lundin Mining (CN:LUN) executive Neil O’Brien become non-executive chairman, filling a position that has been left vacant since July. Kuenzel, meanwhile, will become finance director.

Struthers, also previously at Lundin Mining, was only named COO at the end of last year.

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Georgian said the changes followed an agreement between the company and its partner Caucasian Mining Group regarding the joint 50:50 funding of the 2018 work programme at its Kvemo Bolnisi East copper-gold project on the Tethyan Belt.

The programme is geared towards making a development decision by the end of the year on the gold oxides close to surface at Kvemo Bolnisi East Gold Zone 2 (GZ2). This ore is expected to be processed at either Madneuli or Sakdrisi, nearby operations owned by CMG’s production arm, RMG.

The plan for development would see infill drilling kick off next month, which is expected to take two months to complete with the results incorporated into a final JORC-compliant resource estimate for the gold oxides at GZ2.

Although shareholders had been waiting for close to a year to hear of such news, it did not initially go down well.

Its stock closed 13% lower and has not yet recovered to the pre-announcement price of £0.10 (US$0.14) per share. At £0.095, its share price is down 40% since January 31.

Still, its shares are currently up 2.7% for the day.

Kuenzel, who previously told Mining Journal he expected Georgian to be mining at the project by the end of last year, had always planned to step aside to allow the “right man to take over at the right time”, according to Georgian’s nominated advisor and broker, SP Angel.

Georgian was keen to point out Struthers and O’Brien’s engineering and technical and management expertise, which it said would go a long way to helping the company  meet its objectives.

These are:
•    Advance the technical and financial studies at Kvemo Bolnisi East to cement the production sharing agreement with RMG, and ready the asset for production; and,
•    Develop the “full mineral potential for both the wider KB project and the remainder of the JV licence area”, Georgian said.

The company has an 860 square kilometre licence in Georgia and has already defined both a gold and copper resource at Kvemo Bolnisi East.

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