Think the Commodities/Mining Boom Is Over? Insiders Don't

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by: Judy Weil

Commodity prices may be down, but industry players such as infrastructure and heavy machinery manufacturers generally report that mining is their strongest segment. Most look upon the current market environment as an opportunity, both for clients and for their companies. A survey of recent conference calls shows a surprisingly bullish outlook.

Note: Just a few moments ago, mining concern Rio Tinto announced job cuts and spending pullbacks. All of these conference calls took place over the last six weeks.

Terex Corp.'s (NYSE:TEX) Q308 conference call:

Cranes are strong. Mining remains solid and growing. Incremental mining capacity continues to be added, even if the rates have come down.

Developing markets remain strong with some exceptions. Russia is an exception. North America will likely recover before Europe. And big cranes and mining shovels and trucks continue to be mostly sold out, although small cranes are clearly slowing and will slow. The depression scenario for Terex would have all these segments roll over all at once and we do not see this, nor do our customers and competitors.

[In] the Material Processing & Mining and Cranes segments, net sales increased by 18% and 26% respectively… [These segments] contributed over 100% of the operating profit in the period... Backlog on a comparable basis increased 19% from the comparable prior year period, and is up 2% from Q208.

We believe that current commodity prices are still in the range to support future capital investments. Order rates continue to be strong, and there are no real indications of reduction in capital spending by larger customers, although we are seeing some slowdown in orders from independent smaller customers due to financing availability.

Fluor's (NYSE:FLR) Q308 conference call:

New project awards of $8.8 billon, completely eclipsed our previous record just last quarter. The third quarter of course included the $3.4 billion award for the BP Whiting Modernization Project in the U.S. and a large gas processing project in Russia along with a $1.3 billion mining project in Latin America. Consolidated backlog at the end of our third quarter rose once again to a new company record of $36.5 billion, as a $3.5 billion sequential increase over last quarter and a 31% increase from the same period a year ago.

In Industrial and Infrastructure, the two more active markets continue to be mining and infrastructure… Mining is probably the most economically sensitive business that we're in especially given recent commodity prices to clients, as well as signs that Chinese demand maybe slowing, though from a high level. BHP Billiton (NYSE:BHP), Rio Tinto (RTP) and others have raised this as a concern.

While we have to wait and see what impact this would have on capital spending plans in the mining sector, we did book a very sizable mining project in this quarter, which I think is very encouraging.

FLR CEO Alan Boeckmann, who was also recently elected to the board of BHP Billington:

Clearly there’s been a drop in demand on some of the commodities…[but] they [BHP] expects that emerging economies will continue to grow again, will continue to ramp up demand for commodities.

Foster Wheeler Ltd.'s (FWLT) Q308 conference call:

We had no material cancellations or delays of contracts in backlog due to the turbulence in the financial markets or concern over commodity prices.

Caterpillar, Inc.'s (NYSE:CAT) Q308 conference call:

We expect continued growth in sales related to mining and energy overall on a global scale… For several years now, customers have been demanding more big machine engines and turbines than we or the industry could supply.

Commodity prices are down for the most part, but they are still at levels that are attractive for investment by our customers. Mining and energy companies were doing very well at prices well below where they are today, and they have very strong capital positions to facilitate their investments.

Roughly half of our mining sales are the coal mines, and coal prices are, relative to other commodities, in very good shape and well above levels that support continued investments.

Further, we have a very long backlog of orders for mining machines… We are adding capacity, particularly for big machines and engines that support mining, energy and big infrastructure development, all areas that are in very high demand and for the next 10 years look very promising.

To summarize our outlook for sales and revenues, a good business for mining and energy supported by a long order board… At close to $50 billion in 2009, about flat with our revenues in 2008.

KBR Inc.'s (NYSE:KBR) Q308 conference call:

In the Asia-Pacific area, we are seeing strong demand particularly in the minerals markets. There are several projects located in the region including Australia, Indonesia and India that are in need of design, construction and mining facility management services.

KBR is currently working on several iron ore and coal mining projects in Australia for Rio Tinto and BHP Billiton.

Earlier this month, KBR acquired Wabi Development Corporation… expanding KBR's capabilities [for] more mining extraction and primary separation work in Northern Alberta... The Canadian heavy oil market still remains strong and we expect some good work to come from this market.