Model Portfolio
The model portfolio’s return is +33.83% YTD compared to +24.43% for the S&P500, and +71.82% versus +45.77% for the S&P500 since inception (September 2022). The model portfolio, as of Friday’s close, is as follows:
Now, let’s review the main developments among the companies in the model portfolio for the week:
Braskem
Braskem’s Investor Day has left plenty to discuss after more than three hours of presentation. The analysts in attendance, such as those from Santander and Citi, praised the depth and volume of information shared. The event covered the company’s acquisition and integration history, its current position in the sector, and a detailed breakdown of each strategic market: Brazil, the United States, Mexico, and Europe.
One of the most recurrent themes was the inherent cyclicality of the petrochemical business. Braskem emphasized how, after years of excess industrial capacity—particularly in China, whose dumping depressed prices and utilization rates globally—the sector is laying the foundations for a new expansionary cycle. In Brazil, tariffs set until 2025 aim to balance a domestic market whose utilization rate, at just 64% for the year so far, makes the business unfeasible. Despite this, Braskem expects to start generating positive cash flow in 2025, thanks to a combination of organic demand recovery and adjustments in its operational structure.
In Mexico, the outlook changes substantially heading into Q1 2025, with the launch of an ethylene import terminal. This will allow the company to replace costly truck transportation with pipelines, reducing financial costs by 30% and significantly increasing the utilization rate of its facilities.
Another key point was the accelerated transition in the raw material mix, moving from an almost exclusive dependence on naphtha to a more diversified and flexible portfolio, capable of adapting to price fluctuations, such as the current rise in natural gas prices in the United States.
On the financial side, Braskem has adopted a conservative strategy to endure the “desert trek”: reducing CAPEX and optimizing costs, which is expected to contribute an additional USD 100-150 million to EBITDA in the short term. However, challenges persist, such as the complex situation in Alagoas, whose impact will remain at least until 2027.
Finally, the company avoided commenting on M&A topics or the situation with Novonor, leaving analysts with more questions than answers in this regard. Despite the challenges, the roadmap presented suggests that Braskem is focused on stabilizing its business and positioning itself to take advantage of the next expansionary cycle in the petrochemical industry.
Denison Mines Corp.
Denison Mines Corp. has announced a strategic agreement with Cosa Resources Corp. to form three uranium exploration joint ventures in the Athabasca Basin region of Saskatchewan, Canada. This agreement allows Cosa to acquire a 70% interest in the Murphy Lake North, Darby, and Packrat properties, previously 100% owned by Denison, in exchange for Cosa shares, deferred payments, and a commitment to invest in exploration.
Exploration investment: Cosa must invest CAD 6.5 million in exploration to maintain its role as operator and its 70% interest in Murphy Lake North and Darby. If these conditions are not met, Denison will increase its stake to 51% and take over the operation of the projects.
Denison’s interests: The company will retain a 30% direct interest in the properties and a 2% net royalty on Darby and Packrat, and 0.5% on Murphy Lake North. Additionally, it can reduce its royalty interest in Darby and Packrat through a CAD 2 million payment per project.
Equity participation: Denison will receive 14.2 million common shares of Cosa, representing 19.95% of the company, as well as CAD 2.25 million in deferred shares to be paid within five years.
Strategic control: Denison will have preemptive rights to maintain its stake in Cosa above 5% and may nominate up to two members to the company’s board if its stake exceeds 10%.
Buydown in Darby: Denison can regain up to 60% interest in Darby under certain conditions, including achieving commercial production of 500,000 pounds of U3O8.
This agreement strengthens Denison’s strategy to focus on its core mining and development projects while collaborating with experienced exploration partners. With a structure that incentivizes exploration, Denison ensures exposure to potential major discoveries while enhancing its financial and strategic position through a significant stake in Cosa Resources.
Golar LNG
The recent inclusion of YPF in the joint venture with Pan American Energy (PAE) and Golar LNG marks a significant milestone in the Argentine energy industry. This strategic alliance aims to boost the production and export of liquefied natural gas (LNG) from Vaca Muerta, one of the world’s largest shale gas reserves.
The project involves the installation of a floating liquefied natural gas unit (FLNG) in Río Negro province, with an annual production capacity of 2.4 million tons of LNG, equivalent to 11.5 million cubic meters of natural gas per day. Commercial operations are expected to begin in 2027, with an estimated investment of USD 2.9 billion over the next ten years, reaching USD 7 billion over the two decades of the projected lifespan.
YPF’s participation in the joint venture with PAE and Golar LNG represents a strategic move toward expanding LNG production and export from Argentina, making it much more likely that we will see new FIDs in the region and that GLNG can add more terminals, providing significant growth potential for the company’s valuation.
Another good week of value creation by portfolio companies.
Disclaimer
LWS Financial Research is NOT a financial advisory service, nor is its author qualified to provide such services.
All content on this website and publications, as well as all communications from the author, are intended for educational and entertainment purposes only and should under no circumstances, whether explicit or implicit, be considered financial, legal, or other types of advice. Each individual should conduct their own analysis and make their own investment decisions.
