Earnings are on deck for many of the smaller E&P plays we follow and we will be listening to conference calls to report to you what we hear and where the results are. The next few days' articles will probably focus heavily on oil and natural gas as well as other fuel sources with less of an emphasis on the metals complex. Crude inventory numbers will be released on time on Wednesday as we are now back on schedule after the storm.
Oil & Natural Gas
We are going to listen to the Chesapeake Energy (CHK) earnings call again, but our initial takeaway is that we understand why shares finished lower by $1.58 (7.87%) on Friday to close at $18.49/share. We were surprised that volume was not higher on the news that the company had pushed back the dates for the possible sales or joint ventures of various properties they have discussed divesting through various transactions. We had hopes that Chesapeake would have at least been on track to announce one large divestiture before the end of the year in order to enable serious investors to shift focus away from the cash flow issues and instead focus upon the actual results which appear to be bullish at this time. We will have more on this in the days to come.
We are seeing a trend develop in the gold sector, and it is something we have been discussing over the past year. Rising input prices have been holding the sector back for some time as the leverage is no longer there for the miners and a major reason why investors would rather simply invest in the physical gold holding trading vehicles than risk production issues with the miners themselves. The latest company to get bit was Newmont Mining (NEM) on Friday with shares falling $4.48 (5.42%) to close at $48.74/share with volume spiking to 12.2 million shares. The company is seeing rising cost per ounce of gold and per pound of copper and this has led some analysts to downgrade the shares. The company has a healthy capital expenditure budget and investors can only hope that this will change the lower production moving forward.
Yamana Gold (AUY) is one which has not been plagued by issues that other gold miners have faced recently, and in fact had recently hit new 52-week highs. The shares did back off of those highs after the news from competitors and as gold backed off during trading Friday by $40/ounce. If one wants exposure to gold there are but a few good plays and we believe that Yamana is one of the few which investors in the U.S. have easy access to. We have been bulls of the shares for some time and were we not focused intently upon the prospects of some of the junior gold miners, then Yamana would most certainly make up a portion of our gold exposure.
It is funny what a day can do, and Friday altered the bullishness that had been building towards Freeport-McMoRan (FCX). Shares finished at $39.26/share after falling $1.29 (3.06%) after rising above $40/share in previous sessions. As we have previously said, we think that at these levels the stock is a bit on the expensive side considering the global economic news. Should the situation in China change, so too shall our opinion on the prospects of Freeport-McMoRan. Remember they have gold and copper exposure as well as unwanted exposure to locales which want to seize larger ownership roles and higher tax revenues for themselves. That is almost never good long-term for the local economies and resource production, so it will be interesting to see how this all turns out in the months ahead.
One of the stocks at the top of our watch list is Peabody Energy (BTU) and we have been watching it for some time. Finally the shares have broken up towards that $29/share level and breached that threshold. We want to be buyers on this pullback, so long as it does not break below levels where the uptrend would be put in question. We are not sure when we will jump in and make our purchase, but what we do know is that it will be via our retirement account so we will be long-term holders of the shares once we begin to accumulate. We shall keep readers posted.