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A survey of North American equities heading in both directions

On the rise

Argonaut Gold Inc. (AR-T) soared almost 32 per cent following the premarket announcement of a definitive agreement to be acquired by Alamos Gold Inc. (AGI-T).

Under the deal, Alamos will gain Argonaut’s Magino mine in Canada, while the company’s assets in the United States and Mexico will be spun out to its existing shareholders.

Argonaut’s Magino mine is located next to Alamo’s Island Gold mine in Ontario. Alamos says integration of the two operations is expected to allow for the use of shared infrastructure and create significant savings.

Under the agreement, Argonaut shareholders will receive 0.0185 of an Alamos common share and one share in a new company for each Argonaut share they hold.

The exchange ratio implies an estimated value of 40 cents per Argonaut common share or a total of about $440-million based on the price of Alamos shares Tuesday and the estimated value of the shares in the new company.

The new company will own Argonaut’s Florida Canyon mine in the United States, as well as the El Castillo Complex, the La Colorada operation and the Cerro del Gallo project in Mexico.

In connection with the transaction, Alamos has agreed to provide Argonaut with a $50-million private placement equity financing that will give it a 14-per-cent stake in the company. Once the new company goes public, Alamos has also has agreed to increase its stake to 19.9 per cent.

First Quantum Minerals (FM-T) increased 6.8 per cent after Reuters reported its executives met with Chinese government officials last week to discuss funding and business options involving top investor Jiangxi Copper Co, three sources with knowledge of the matter said.

The talks in Jiangxi province included topics such as the potential for state-run Jiangxi Copper, China’s leading producer, to gain influence on First Quantum’s board decisions, two of the sources said. Also discussed was the future of First Quantum’s Zambian assets and the prospect of Jiangxi buying its disputed copper concentrates inventory from Panama, they said.

Since November last year, Jiangxi has invested about $745-million in First Quantum through debt, equity and a prepayment copper deal. Still, despite being one of the biggest shareholders, Jiangxi does not have any say in board decisions.

Toronto-based Aecon Group Ltd. (ARE-T) was higher by 1.6 per cent with the late Tuesday announcement that VIports Partners, a consortium it is leading, has been selected by the U.S. Virgin Islands to redevelop the Cyril E. King Airport in St. Thomas and the Henry E. Rohlsen Airport in St. Croix under a DBFOM P3 model.

Along with Tikehau Star Infra, J. Benton Construction and Avports, the company modernize the airport amenities and add passenger boarding bridges.

Aecon will hold a 50-per-cent interest in the design-build joint venture and a 50-per-cent equity interest in the 40-year concession once the project is completed.

“Overall, despite the limited details, we view this project as a positive development for ARE as the firm has significant experience in small/medium-sized airport development (a niche which management likes) and airport concessions bring stability to ARE’s financial results,” said Desjardins Securities analyst Benoit Poirier.

“The project also offers excellent optionality (divest, partially divest or keep), which enables ARE to unlock value at an attractive valuation (especially given ARE trades at 3.6 times EV/EBITDA FY1) while freeing up capital to reinvest in other attractive projects—eg in 2015 ARE sold its 45.5-per-cent stake in Quito International Airport for an implied EV/EBITDA multiple of 7.0 times and last year it sold a 49.9-per-cent stake in Bermuda Airport for an impressive implied multiple of 16.7 times. According to Bloomberg, airport owners/operators currently trade at an average of 15.1 times EV/FY1 EBITDA.”

The U.S. Food and Drug Administration approved Merck’s (MRK-N) treatment for adults with high blood pressure due to constriction of lung arteries, adding another potential blockbuster drug to the pharmaceutical giant’s portfolio.

Shares of Merck were up almost 5 per cent in Wednesday trading.

The therapy, branded Winrevair, is approved for treating pulmonary arterial hypertension (PAH), which affects about 40,000 people in the United States.

“We look forward to making a significant difference for these patients that are left with a disease where the five year mortality is 43 per cent,” Jannie Oosthuizen, president of Merck’s U.S. Human Health business, told Reuters.

Winrevair will carry a list price of US$14,000 per vial, Oosthuizen said. According to data from the company’s trial, most patients will use a single vial every three weeks, which would translate to US$238,000 per year.

The drugmaker expects to be able to bring the drug to the market by the end of April.

Carnival Corp. (CCL-N) raised its annual profit forecast on Wednesday, anticipating a record year of bookings as the company benefits from a rise in people seeking cruise vacations for the first time.

Cruise operators are recording all-time high booking rates as more travelers switch to cheaper sea-borne experiences over expensive land-based alternatives such as booking hotels or flights, providing them more room to raise prices.

U.S.-listed shares of the company were higher by 0.9 per cent. They have risen about 94 per cent in the last 12 months.

“The first quarter has been fantastic across the board,” CEO Josh Weinstein said on a post-earnings call. “We delivered record bookings and record customer deposits again this quarter, a great start to the year.”

The company’s first-quarter revenue jumped 22 per cent to US$5.41-billion, roughly in line with analysts’ expectations.

Bookings for the rest of 2024 remain the best year on record with total customer deposits reaching US$7-billion in the first quarter, the company said. New-to-cruise customers surged more than 30 per cent year-over-year, Carnival said.

Adjusted cruise costs, excluding fuel in constant currency, were up 7.3 per cent in the first quarter from a year earlier, but 2% lower than the company’s forecast.

“Unlike prior quarters that were revenue-driven beats, it was cost line items that drove the first-quarter beat,” Truist Securities analyst Patrick Scholes said in a note.

However, cost improvements of more than US$250-million are being offset by the US$130-million hit from re-routing ships in the Red Sea region, higher fuel prices, and currency exchange rates, CFO David Bernstein said.

The cruise operator raised the expected impact of the Red Sea disruptions to 9 US cents per share from the 7-8 US cents it had estimated in January.

Carnival also estimated an impact of up to US$10-million on full-year adjusted EBITDA and adjusted net income following Baltimore’s Francis Scott Key Bridge collapse on Tuesday.

Shares of Robinhood Markets (HOOD-Q) jumped on Wednesday after the financial technology firm launched a credit card, as it expands its product offerings in order to reduce its reliance on market-sensitive trading revenue.

The Menlo Park, California-based company’s shares were last up 3.8 per cent, having hit their highest since December 2021 earlier in the session.

Retail-investor focused Robinhood is set to offer its premium ‘Gold’ tier customers a credit card which would have no annual fee, no foreign transaction fees and offers 3-per-cent cashback, in the form of reward points, on spends.

“Tieing the credit card to Robinhood’s Gold program should be accretive to revenues because of the profitable options trading and use of margin that comes with it,” said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors.

Robinhood was at the center of the 2021 retail trading frenzy, driven by mom-and-pop investors who used the company’s commission-free platform to pump money into so-called “meme stocks” during the pandemic-era lockdowns.

In February, the company said it was aiming to expand margins while being focused on driving ‘profitable growth’ this year, after reporting a surprise quarterly profit.

It has also benefited from the increased activity of retail traders - its main client base - this year against a rally in both the capital as well as crypto markets.

The turnaround in trading activity and an increased focus on profitability have together sparked a rally in the fintech’s stock, that has surged over 50 per cent so far this year.

“Robinhood has been strategizing for a while to increase customer excitement, spur engagement, and incentivize more established individual investors,” Schulman added.

Short interest in the stock is currently at 5.88 per cent of the free float, with short-sellers sitting on over US$200-million in paper losses from the beginning of 2024, as of previous close, according to data from Ortex.

Kimberly-Clark Corp. (KMB-N) rose 0.9 per cent after it said on Wednesday it would reorganize into three business units as the Kleenex tissue maker looks to simplify operations and cut costs.

The Irving, Texas-based consumer goods maker said it would incur about US$1.5-billion in related costs over the next three years.

Cash costs are expected to be about half of that amount, primarily related to workforce reductions, it said in a filing without disclosing the number of jobs it would cut.

The restructuring comes at a time when the company is seeing benefits from its consistent price hikes wane and inflation-stricken customers pull back on purchasing its pricier products.

Kimberly-Clark, like its peers Procter & Gamble (PG-N) and Unilever (UL-N), is also losing shelf-space at retailers to more affordable private-label alternatives.

The company’s reorganized segments will now include its business in North America, the international personal care segment and the international family care and professional businesses.

It previously had three business segments — personal care, consumer tissue and Kimberly-Clark professional — with each having three geographic sub-divisions.

Walt Disney Co. (DIS-N) finished 0.9 per cent higher after it reached a settlement agreement with Florida Governor Ron DeSantis in a lawsuit over who controls the entertainment conglomerate’s governing district, the company said on Wednesday.

Disney also agreed to drop a late 2023 lawsuit over access to public records and defer briefings in the federal lawsuit it filed against Mr. DeSantis in April last year, pending the outcome of talks on a new development agreement for Walt Disney World.

“This agreement opens a new chapter of constructive engagement with the new leadership of the district,” Walt Disney World President Jeff Vahle said.

Mr. DeSantis and Disney have been embroiled in a dispute since 2022 when former CEO Bob Chapek criticized a state legislative effort to limit classroom discussion of sexuality and gender issues for younger students, a bill that critics call the “Don’t Say Gay” measure.

The clash with Disney was the centerpiece of Mr. DeSantis’s speeches last year during his preparation for the U.S. presidential race, from which he later pulled out.

In response to Disney’s criticism, he had then urged the legislature to abolish the special district that gave the company a virtual autonomy over the development of its theme parks in central Florida.

Shares of Trump Media & Technology Group (DJT-Q) rose 14.2 per cent further on Wednesday, extending gains from their stellar Nasdaq debut to the second day, fueled by retail investors including supporters of former President Donald Trump.

Shares of Trump-controlled TMTG, which owns his Truth Social social network, have climbed over 30% since they began trading on Wall Street on Tuesday through a merger with a blank-check company already listed on the Nasdaq.

With the stock last at US$66.10, TMTG had a market capitalization of over US$9-billion, lifting the value of Trump’s stake to over US$5-billion.

Trump’s media company ticker leads to fleeting windfall for some investors

The rise underscores the popularity of Donald Trump driving investor interest, but the platform Truth Social would need to show strong user growth to sustain the trajectory, analysts said.

“There is likely to be significant volatility ahead as a share buying frenzy among his supporters may wane, and investors dig deeper into the fundamentals,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Truth Social has 8.9 million signups, according to a regulatory filing on Feb. 14, and does not break down the active users figure.

In comparison, X had 238 million daily active users as of June 2022, as per the latest available official data, while Facebook and Reddit had 2.1 billion and 73 million, respectively.

On the decline

Battery recycler Li-Cycle (LICY-N) fell 4.2 per cent with the release of a plan to lay off 17 per cent of its staff - including three senior executives - as it pares its ambitious global growth plans in order to save cash and focus on building a crucial processing facility in New York.

The cuts, announced on Tuesday, are a tacit acknowledgement by the Toronto-based company that its rapid growth in recent years - with facilities announced across North America, Europe and Asia - was unsustainable given the high costs and technical challenges associated with building what is essentially a new global market for electric vehicle battery recycling.

In all, 60 employees will lose their jobs. The company was still informing affected staff about the cuts on Tuesday afternoon.

Li-Cycle, which plans to record an US$8.3-million severance charge this quarter, will have roughly 200 employees after the cuts.

While Li-Cycle posted its highest quarterly revenue ever during 2023, the company has struggled with construction cost overruns at its Rochester, New York, battery processing facility. The U.S. Energy Department said last year that it would conditionally lend the company US$375-million for that facility, but cost estimates have nearly doubled to US$960-million.

That massive cost overrun - along with technical complexities of recycling technology the company planned to use - had hammered Li-Cycle’s stock and forced it to seek a cash infusion from Glencore. The mining giant earlier this month announced a US$75-million convertible loan that if exercised, would make it the largest shareholder of the New York-listed company.

The Rochester facility is central to the company’s “hub-and-spoke” model, in which multiple collection and processing facilities shred batteries into so-called black mass, which then will be separated at the facility into lithium and other metals once it is operational.

Li-Cycle had talked about building similar hubs in Europe, but those plans are on hold until it can prove the model works in North America.

GameStop’s (GME-N) shares slumped 15.2 per cent on Wednesday, as the brick-and-mortar video game retailer reported a decline in fourth-quarter revenue on the back of a spending slowdown and rising competition from e-commerce firms.

The Grapevine, Texas-based company also said late on Tuesday that it had cut an unspecified number of jobs, joining Japan’s Sony and Electronic Arts in a bid to reduce costs as economic uncertainty hits discretionary spending.

GameStop is set to lose more than US$900-million in its market capitalization if the premarket losses hold.

As of Tuesday, GameStop’s stock had fallen nearly 12% this year, as the retail and ecommerce environment remains intensely competitive for the company, which was once a mainstay of American malls.

The company has a total of 4,169 stores as of Feb. 3, compared with 4,413 in January last year.

GameStop was hailed as the pioneer of Wall Street’s so-called meme stocks. The stock’s price rose as much as 100 times over several months in 2021, largely on the sentiment of individual buyers connected through the Reddit community forum WallStreetBets.

“No sooner has the meme stock craze been resurrected by Donald Trump’s media company enjoying a big share price boost, it’s somewhat ironic that the grandfather of meme has fallen flat on its face,” AJ Bell investment director Russ Mould said.

With files from staff and wires

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

SymbolName% changeLast
Aecon Group Inc
Alamos Gold Inc Cls A
Argonaut Gold Inc
Carnival Corp
Trump Media & Technology Group Corp
First Quantum Minerals Ltd
Gamestop Corp
Kimberly-Clark Corp
Li-Cycle Holdings Corp
Merck & Company
Robinhood Markets Inc Cl A
Walt Disney Company

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