Mining Sector: Q2 Earnings Should Help Ward Off Summer Slump

Second quarter earnings in the mining sector won't likely be pretty when compared to this time last year, but an expected jump in profits from Q1 should help stocks ward off a slump over the next few months.

"On average, we expect higher earnings/cash flow to be reported for our group of covered companies for the 2Q09 period when compared with 1Q09, said John Redstone, Desjardins Securities analyst.

In our opinion, the increasing level of forecast earnings to be reported by the majority of base metals companies vs the previous quarter should help underpin the mines & metals sector on the TSX over the summer period.

With commodity prices rising dramatically from the first quarter, Mr. Redstone expects stellar results from several companies, Of note, profits at Freeport McMoRan Copper and Gold Inc. (FCX), Capstone Mining Corp. (CSFFF.PK), and HudBay Minerals Inc. (HBMFF.PK) will rise on higher copper prices, up $.56 per pound since Q1.

Meanwhile, despite lower average coal prices, Teck Resources Ltd. (TCK), will benefit from asset sales and adjustments to its balance sheet. The diversified miner will also gain from the rising value of the Canadian dollar in comparison to the US dollar during the last quarter.

Comments

[Mad Hedge F...:]

Look at FCX. One of my favorite stocks, and one of the great “tells” on the state of the global economy is Freeport McMoRan (FCX), the world’s largest copper and gold producer. CEO Richard Adkerson says it’s all about “China, China, China”, which has been frenetically stimulating it economy with a $586 billion reflationary package and rebuilding stockpiles of the red metal at a furious pace. The ongoing lifestyle upgrade in other emerging markets is adding to demand, and is the switch to hybrid cars in industrialized countries, which use two to three times more copper than conventional cars. Last year FCX mined 102 billion pounds of copper, 40 million ounces of gold, and 266 million ounces of silver. A doubling of copper prices since January enabled FCX to announce blowout earnings yesterday. The stock has tripled since my New Year recommendation at www.madhedgefundtrader.... If you want a core holding that is in many right places at the right time, use dips to back up the truck for FCX.

Jul 22 12:11 AM

[FIFOkid:]

FCX is a good stock to own if you want maintain liquidity and if metals prices continue to surge higher. The main visible risk here is the new terms of the renegotiation of the T/F Mine in the DRC.

Capstone Mining IMO is a play to accumulate after the damage is done from a fast drop in metals and sector equity prices as it is best hedged for a bear market scenario. In this period of rising metals prices above their collars its earnings power will lag and explains the stock's recent underperformance.

HudBay is one to watch since it is in a great position to expand due to a massive cash hoard and the stock has greatly underperformed the sector. I think the major catalyst for the price of the stock will be reliant on what acquisition it will make and when it was made.

Teck Comico strategists almost bankrupted the company by overpaying for assets at a top in the cycle and what saved it was the fast rebound in commodity prices assets sales at a bottom and a debt restructuring.
After a more than 10 fold increase in the price of the stock since these huge blunders I would be happy enough with the generous increase in the stock.

Aug 15 03:08 PM