ASX Today — Live ASX News | XJO Flat; RBA Review; BOQ, Rio Tinto, Santos, Redbubble Feature

Earlier this week, I wrote to my subscribers that small-time investors like you and me are the pesky flies that sit on the wall of big-time players and mining executives…

Usually, we play ball on managements recommendations to shareholders.

As deals get brokered…mergers and acquisitions (M&A) take place…investors are fed the corporate spin…

But rumblings are growing in the industry.

Are these deals always in the best interests of shareholders?

Given much of the recent M&A activity has involved majors taking over mid-tier mining stocks, one has to ask: Is now really the time to be selling?

With so many metrics pointing towards supply deficits and unprecedented demand arriving in the form of a dramatic energy transition, it seems we truly are embarking on a new era for commodity stocks.

Fundamentally, the outlook for mining has never been stronger.

Take yourself back to the early days of the China-fuelled commodity boom around 2003/04, and we perhaps have a sense of what lies ahead.

The cycle is on course to repeat — not exactly, but with similar outcomes.

But this time it’s the political elite leading the charge. Why?

They’ve signed the death knell for the oil and gas industry.

Termination of exploration rights, strict ESG requirements that cut investment to the industry from retail funds, and an open commitment to destroy their business model…

That’s why new oil and gas discovery is at its lowest level in 75 years, according to the research firm Rystad Energy.

The situation is similar in Australia. Oil and gas expenditure for new discoveries is hovering around 10-year lows.

See for yourself below:

Government mandates have successfully killed corporate motivation to find replacement fossil fuels.

That has some very real consequences for our future energy security, when we ALSO consider mineral exploration has also suffered from severe underinvestment for more than a decade.

It paints a VERY bleak picture for a SMOOTH energy transition.

That’s the reality we now face. There’s no turning back now.

With all that said, why are shareholders eager to give up their stock in a junior to a major mining corporation as part of a buyout offer?

After all, it’s these mining conglomerates that are sounding the alarm bells over supply deficits.

https://www.dailyreckoning.com.au/part-one-how-to-structure-your-portfolio-for-a-fierce-bidding-war-among-the-majors/2023/04/20/

While RBA governor welcomed the review into the Reserve Bank and its recommendations, Lowe prickled at the characterization of the RBA Board as meek and malleable to Lowe’s will.

‘The idea that the board members sit there meekly and accept the recommendations that I put to them is very far from the reality that I’ve lived as the governor’, said Lowe during a media conference held after the release of the review.

The representation of a docile board did not ‘resonate’ with the governor. Lowe said the board’s members worked effectively, defending their expertise and independence.

The RBA Review said many consulted by it were worried the current Board ‘can provide only limited challenge to the view of the RBA executive’:

‘However, many consulted by the Review were concerned that the Reserve Bank Board as currently set up can provide only limited challenge to the view of the RBA executive. The Reserve Bank Board has not voted against a recommendation of the RBA executive in at least the last decade (RBA 2022g). Current and former Reserve Bank Board members themselves described the Reserve Bank Board’s role in various ways, ranging from providing real-time feedback on the economy, to an informed second opinion, to a ‘pub test’ of how decisions might be understood by the public.

‘These explanations centred on the external members providing a non-expert challenge to the RBA executive’s proposed monetary policy approach. That leaves the underlying economic and financial judgements with insufficient external scrutiny or challenge and represents a missed opportunity. The economic expertise of the Reserve Bank Board’s external members is lower than for comparable central banks, such as the Bank of England, US Federal Reserve, Norges Bank and Reserve Bank of New Zealand.

‘This has limited the depth of challenge and debate at the Reserve Bank Board. For example, during the pandemic, people with a deeper understanding of the financial system may have been better placed to offer alternate views on the design of the complex monetary policy tools proposed. The level of economic expertise among external Reserve Bank Board members was a factor that some (both inside and outside the RBA) pointed to as lowering the demand for technical insight and research within the RBA. It has likely contributed to a research culture at the RBA that is not well embedded in the policy process. The Review recommends changing the structure of the Board to ensure decision makers in future have the expertise to understand complex economic assessments on issues that are relevant to monetary policy and offer their own well-considered views with confidence.’

Lithium producer Allkem (ASX:AKE) released its March quarter update, showing strong production growth from Olaroz and Mt Cattlin.

AKE’s Olaroz facility produced 4,102 tonnes of lithium carbonate, up 38% on the previous corresponding period. It was a record for a March quarter.

Lithium carbonate sales were 2,904 tonnes, generating record Olaroz revenue of US$159 million with a record gross cash margin of 91%.

Allkem said cash cost of goods sold for the quarter rose 5%. The producer said the cost of sales rose over the last year ‘due to material increases in the price of soda ash, lime, natural gas and employment costs’.

As for Mt Cattlin, the asset produced 38,915 dmt of spodumene concentrate at 5.3% Li2O, a doubling quarter on quarter. Spodumene sales were 21,553 dmt, generating US$123 million, with a gross cash margin of 81%.

In total, AKE’s revenue for the March quarter was US$315 million. As of 31 March, 2023, AKE’s net cash was US$577.9 million, up US$25.9 million from 31 December, 2022.

$AKE said #lithium demand grew at a lower rate than expected but thinks 'fundamentals underpinning lithium demand remain very strong'.

On supply, Allkem expects additional lithium supply in the near-to-medium term but argues 'the quantum of the increase is likely to continue to… pic.twitter.com/MQjZTI6gXS

— Fat Tail Daily (@FatTailDaily) April 20, 2023

The Reserve Bank governor Philip Lowe is now speaking following the review into the central bank he leads.

You can listen live here.

And you can read his prepared remarks here.

In his prepared remarks, Lowe commented on the big proposed change to creating a separate board whose sole focus is monetary policy:

‘The recommended changes could also strengthen the monetary policy process, by having a board whose sole focus is monetary policy. I very much welcome the conclusion that this board should include people with diverse perspectives and knowledge and who have experience in decision-making under uncertainty. It is also pleasing to see that the Panel recommended that the Treasury Secretary remain on the Board.

‘The establishment of these two boards will require changes to the Reserve Bank Act, which is a matter for the Australian Government and Parliament. You would have already heard that the Treasurer intends to proceed with these changes. We will work constructively with the Government and Parliament with the aim of ensuring that any changes to legislation are effective in achieving their objectives.’

Oh, the usefulness of the search function.

The 300-page review into the Reserve Bank is a wide critique of the central bank that pundits will be dissecting for weeks.

One topic of discussion was groupthink, mentioned 11 times in the report.

Specifically, the review thought there is a risk of groupthink within the RBA that must be hedged with better incorporation of diverse views.

The review heard from stakeholders calling the RBA a ‘closed shop’ with ‘little interaction with the broader economics community’. One such stakeholder summed it up by noting:

‘As an observer, it would appear to me that the RBA has an insular culture that is not particularly open to ideas from outsiders and is prone to groupthink.’

Only 53% of current RBA employees agreed with the phrase ‘the RBA takes into account the views of a broad range of external stakeholders’. The responses were even worse for staff in the Economic Research Department, with only 10% agreeing.

The Reserve Bank of Australia timed the release of a comprehensive review into its operation with a statement of its own.

After polite throat-clearing welcoming the review, the RBA said it will ‘work constructively to ensure’ the recommended changes ‘strengthen the Bank and the way it operates’.

Philil Lowe then added:

‘The Review Panel rightly acknowledged the substantial contribution the Bank has made to Australia’s economic success and the skills and dedication of the staff. It also acknowledged the RBA is highly regarded and respected in Australia and overseas. The recommended changes will build on that strong foundation and strengthen the Bank’s governance and decision-making processes. They will help us deal with the complex world in which we operate as we strive to promote the economic welfare of the Australian people.’

Lowe will brief the media on the review at noon.

Regenerative medicine developer Mesoblast (ASX:MSB) entered a trading halt pending a ‘private placement of securities to targeted investors’.

In February, Mesoblast released its half-year accounts.

Mesoblast had US$68 million in cash and cash equivalents at the end of December 2022, posting US$31 million in cash outflows from operating activities.

Over the past 12 months, Mesoblast is down 13%.

If you’re looking for something to read over the weekend, I’ve got you covered.

The much discussed review into the Reserve Bank of Australia has finally been released to the public.

You can read the whole thing here.

Enjoy.

Here are all 51 recommendations reached by the review into the Reserve Bank, courtesy of the Australian Financial Review:

 

1. The RBA should continue to have operational independence for monetary policy, meaning the government should remove the power for the Treasurer to overrule RBA decisions.
2. The federal government should legislate that the RBA has dual monetary policy objectives of price stability and full employment, with an overarching purpose of providing economic prosperity and welfare for Australians.
3. The federal government should remove the RBA’s power to direct commercial banks’ lending as it is not necessary for the RBA to achieve its core mandate.
4. The RBA’s monetary policy should have a flexible inflation target of 2-3 per cent, but the board should set out how it aims to achieve the target while prioritising price stability and full employment.
5. The RBA should explain its expectations about how long inflation is expected to remain above target, or how long labour market conditions are expected to deviate from full employment when these situations arise.
6. Promote a better understanding of the relative roles of fiscal and monetary policy. This should entail RBA and Treasury regularly providing information about the economic outlook and policy constraints while working together to analyse the impacts of monetary policy decisions on fiscal policy, and vice versa.
7. The RBA and Treasury should develop an Australian Macroeconomic Policy Research Program.
8. The RBA should build a framework for the use of additional monetary policy tools in the future.
9. The federal government and a newly established monetary policy board should instigate a formal review of the monetary policy framework and tools every five years.
10. Legislate that the RBA has a responsibility to contribute to financial system stability.
11. The Council of Financial Regulators (CFR) should renew memorandums of understanding between its members so there is clarity on what roles members have in identifying and addressing regulatory gaps.
12. The RBA board should inform the CFR when monetary policy is likely to affect, or be affected by, risks to financial stability. This includes providing formal advice to the CFR and APRA every five years.
13. Update cooperation arrangements between the RBA and APRA to promote financial stability.
14. The RBA should take account of climate risks but not use
    monetary policy to address them.
15. The federal government should not make a transition to a low carbon economy an explicit objective of RBA’s monetary policy. Instead, it is the government’s responsibility to set the mix of policies to pursue and manage the transition.
16. The federal government should constitute a new monetary policy board that is responsible for monetary policy decisions and overseeing the RBA’s contribution to financial system stability (except payments system policy), but not broader corporate governance.
17. The monetary policy board should comprise the RBA governor, deputy governor, Treasury secretary and six external members, with the governor as chair.
18. The federal government should clarify in legislation that the Treasury secretary acts on the monetary policy board in their individual capacity not at the direction of the treasurer.
19. The monetary policy board’s external members should be able to make a significant contribution to monetary policy setting through their areas of expertise.
20. External monetary policy board members should be appointed through a transparent process where the Treasury secretary, RBA governor and a third party recommends options for suitable candidates to the Treasurer.
21. Monetary policy board external members should be appointed for a term of five years, with the possibility of reappointment for up to one year.
22. The monetary policy board should only meet eight times a year – instead of 11 times like the current iteration of the RBA board – to allow for more time to make better monetary policy decisions.
23. The six external monetary policy board members should have direct access to RBA staff for support on technical matters and additional analysis when requested.
24. The RBA should increase its forecasting and macroeconometric modelling capabilities.
25. The monetary policy board should convene and engage with an expert advisory group on monetary policy.
26. The monetary policy board should receive, and request as necessary, briefings that more fully consider monetary policy strategy, alternate policy options, costs, benefits and risks.
27. The RBA governor should hold a press conference after each decision meeting to explain the board’s views.
28. External monetary policy board members should give at least one public speech a year.
29. The public statement after each RBA board meeting should be released and approved by members as a fair reflection of the decision and discussion. The statement should report unattributed votes.
30. The RBA should publish more of the information underlying the board’s decisions, including detailed forecast data and assumptions and insights from business and community liaison. Board papers should also be published every five years.
31. The RBA should strengthen its professional capability in strategic communications, which includes appointing a chief operating officer
32. Conflict of interest policies for RBA board members should be strengthened. This should entail boards members being prohibited from active trading in financial instruments and from transacting in certain types of financial products, such as interest rate derivatives and foreign exchange.
33. The RBA should appoint a chief operating officer reporting to the governor.
34. The RBA should strengthen and extend its leadership capability through more training, assessments and transparent processes for internal opportunities.
35. The RBA should further encourage diverse viewpoints and constructive challenge, including by advertising management role vacancies externally as a default.
36. The RBA should strengthen the role of research in policy formulation, including by establishing a monetary policy strategy team and increasing collaboration between policy groups.
37. The federal government should establish a governance board – that is separate to the monetary policy board – that is responsible for overseeing the management of the RBA.
38. The governance board should be the accountable authority in respect of the PGPA Act and expand the audit committee to be an audit and risk committee.
39. The governance board’s membership should comprise the RBA governor, chief operating officer and five external members. An external member should be chair.
40. External governance board members should be appointed through a transparent process that is managed by the Treasury secretary, governor and a third party.
41. External members of the governance board should be appointed for a term of five years, with the possibility of reappointment for up to one year.
42. The RBA’s two newly established boards – one for monetary policy and the other for governance – should establish charters setting out their responsibilities and those of the RBA executive. A memorandum of understanding should also be established between the two boards.
43. The RBA’s leaders should be assessed on how they deliver and model cultural change by the newly established governance board.
44. The governance board should assess and report publicly by mid-2025 on the RBA’s progress in implementing the review’s recommendations and achieving its objectives.
45. The federal government should implement any RBA review recommendations that require legislation by mid-2024.
46. The federal government should make any new RBA board appointments by mid-2024.
47. The federal government should make board appointments with a view that appointed members will see out their terms and appointments are made in a staggered manner.
48. The federal government should consult with the shadow treasurer about the implementation of the recommendations of the RBA review, to ensure broad bipartisan support for the new arrangements.
49. The RBA should develop an implementation road map of the review.
50. Any other implementations of the review should be made by the end of this year.
51. The Treasurer and the RBA board should agree an updated statement on the conduct of monetary policy by the end of 2023.

The 51 recommendations were grouped under 14 broader headings according to five themes. Treasurer Jim Chalmers described the five themes thus:

1. ‘A clearer monetary policy framework, with clear objectives and tools, and a well‑defined financial stability role
2. ‘Stronger monetary policy decision making and accountability, including a more expert Monetary Policy Board supported by better processes and greater transparency and accountability around decisions
3. ‘An open and dynamic RBA, with a more agile and empowering culture and more open and constructive debate
4. ‘More robust corporate governance, including the establishment of a new Governance Board to support and oversee management, and
5. ‘Steps to ensure RBA leaders drive institutional and cultural change.’

Good morning.

It’s Thursday. And it’s shaping up to be a busy day in the markets as quarterly reports start to roll through.

Not to mention all the CPI data from the UK and New Zealand.

Oh, and the mammoth review into the Reserve Bank of Australia will be released later this morning.

Some of its 51 recommendations are historic, like the creation of a new board of specialists to set interest rates.

RBA’s Philip Lowe will face the press after the review is released. So stay tuned for that!

Reserve Bank facing massive shakeup with groundshifting review about to be released – governor Philip Lowe's career is in the balance with his reappointment uncertain. Here's my preview on AM @abcnews @RBAInfo https://t.co/vf22YgMO3X

— Peter Ryan OAM (@Peter_F_Ryan) April 19, 2023