Today - Tuesday, January 27, 2015
- This will be a year of adjustments amid uncertain commodity markets, but "we're not backing away from our objectives of reducing leverage, and going forward we're going to continue to prioritize debt reduction," Freeport McMoRan (FCX -5.9%) CEO Richard Adkerson says in today's earnings conference call.
- Copper's long-term fundamentals are strong, the CEO says, adding that FCX’s strength is its long-term reserves, and these will kick into high gear as prices rise, generating cash flows; FCX expects to produce 5.4B lbs. of copper in 2016, up from 4.3B lbs. this year.
- The company's expansion into energy exploration inflated FCX's debt to $19B at year-end 2014; with commodity prices at current levels, its debt target of $12B by year-end 2016 target is now unrealistic, Adkerson says.
- FCX is counting on Chinese demand for copper to grow ~5%/year while it could be only in the low single digits, Morningstar's Dan Rohr says; another risk for the company is that its two lowest cash-cost mines are in politically volatile Indonesia and the Democratic Republic of Congo.
- Earlier: Freeport McMoRan cuts 2015 capital budget by $2B
- AK Steel (AKS +5.8%) beat Q4 expectations amid rebounding auto and construction industries, prompting S&P Capital to upgrade shares to Strong Buy from Hold with a $6 price target, encouraged by stronger-than-expected synergies from the Dearborn acquisition, lower input costs and energy costs, and a strong auto market that comprised half of AKS revenue in 2014.
- However, other analysts gave the beat a cooler reception; Citigroup's Brian Yu, for one, maintains a Sell rating and $2 price target, unconvinced by Q4's improved shipments of 2M tons and realized pricing of $987/ton vs. the firm's model of $980/ton.
- Gold miner (NYSEARCA:GDX) earnings reports are on the way, and Barclays analysts foresee Q4 earnings to come in lower across the board with margins under pressure as metals prices fall; for gold, they see producers’ margins falling ~12% Q/Q.
- Barclays believes lower gold prices also will mean writedowns of assets for many companies, while mining depletion will combine with limited exploration budgets to bring down reserves.
- Most senior and mid-tier gold producers will not see Y/Y production growth in 2015, the firm says; Goldcorp (GG +2.9%), Agnico Eagle Mines (AEM +4.6%), Yamana Gold (AUY +3.2%) and New Gold (NGD +4.2%) should enjoy production growth, while royalty companies Royal Gold (RGLD +1.8%) and Franco-Nevada (FNV +4.6%) should have revenue growth despite lower commodity pricing.
- Randgold Resources (GOLD +2.3%) CEO Mark Bristow says the Kibali gold mine in Zaire is now well advanced into the second and final phase which will take it to full production by 2018.
- With the final commissioning of the metallurgical plant and the first of three hydropower plants, Kibali is operating at design with the ramp-up having delivered against plan, the CEO says.
- GOLD is developing and operating the mine, which it owns in partnership with AngloGold Ashanti (AU +5.9%) and a Congolese state-run firm.
- Cliffs Natural Resources (CLF -1.2%) says it will restructure its Bloom Lake iron ore mine in Quebec, since the business has stopped generating revenue and can longer meet its obligations.
- CEO Lourenco Goncalves says restructuring proceedings have begun in Montreal and restructuring and sale options will be explored.
- The move helps insulate CLF from the vast majority of the $650M-$700M in closure costs tied to its mothballed assets in Canada; it mirrors action taken in September by U.S. Steel, which sought creditor protection for its money-losing Canadian operations.
- First Quantum Minerals (OTCPK:FQVLF -8.5%) says it has substantially reduced planned capital spending in 2015 for its Cobre Panama copper project to $600M, while projecting total capital spending for the year of $1.2B-$1.4B.
- Says Q4 copper production fell 8.3% Y/Y to 105.1K metric tons while copper sales fell less than 1% to 94.8K metric tons; gold output fell 9% to 57.5K oz.
- For 2015, the company expects copper output of 410K-440K metric tons and gold production of 218K-247K oz.
- Top South African gold producer Sibanye Gold (SBGL +1.5%) says it achieved record output in Q4, producing 452.7K oz. of gold to bring full-year output to 1.59M oz., in line with company guidance.
- SBGL expects 2015 capex to climb 10% to 3.6B rand ($320M), largely due to an increase in spending on projects to extend the operating lives of mines and on growth projects such as Burnstone; forecasts 2015 gold production to rise to 1.61M-1.67M oz.
- The capex announcement is something of a surprise, coming at a time of general belt tightening in the global mining industry and capex cutbacks amid falling commodity prices.
- Nucor (NUE -1.4%) opens lower even after Q4 earnings of $0.68 came in above last month's company guidance of $0.53-$0.58/share; both the $0.68 and the guidance exclude a $0.03 charge related to a partial asset writedown.
- NUE says Q4 average selling prices rose 1% and total steel mills shipments rose 2%.
- NUE expects Q1 earnings will decrease from Q4 to a level slightly exceeding Q1 2014, with market conditions in the steel mills segment impacted by challenges in energy markets due to customer inventory reductions caused by lower oil prices; expects improvement in energy demand once inventory destocking is complete.
- Says production at the Louisiana operation remains suspended amid repairs, and adds that the business will notbe operational until late in the current quarter.
- AK Steel (AKS +5.1%) opens higher after reporting a strong Q4 earnings beat and a 36% increase in revenues to $2B on sharply higher shipments, due to strong automotive sector demand and a boost from a recent acquisition.
- Average selling prices fell 4% Y/Y to $987/ton from $1,031/ton reported in the year-ago quarter, mostly on the higher proportion of hot-rolled coil shipments in the overall sales mix stemming from its September acquisition of Dearborn Works; shipments jumped 42% due to strong demand in the automotive sector and the Dearborn Works acquisition.
- Freeport McMoRan (NYSE:FCX) -5.5% premarket after missing expectations for Q4 earnings and saying that it has cut 2015 capital spending by $2B with the possibility of further cuts ahead.
- Says it is taking "aggressive actions" to defer or reduce capital spending, and is seeking third-party funding for much of its oil and gas expenditures "to maintain financial strength and flexibility" in response to the drop in oil prices.
- FCX says its Q4 copper sales fell to 972M lbs. from 1.14B lbs. in the year-ago quarter, primarily reflecting the sale of Candelaria in Nov. 2014 and lower sales from Cerro Verde and Indonesia, while gold sales fell to 377K oz. from 512K oz.
- Q4 average realized prices for copper fell 10.9% Y/Y, gold prices fell 2.2%, and oil prices declined 15.8% from a year earlier.
Monday, January 26, 2015
- U.S. Steel (NYSE:X) says it will temporarily curtail operations at two plants in Alabama and one in Texas that sell steel pipes and tubular products to oil and gas drillers, potentially affecting more than 1,900 workers.
- Earlier this month, U.S. Steel said it would idle plants in Ohio and Texas, and possibly lay off up to 756 workers.
- The fall in oil prices could decimate an entire industry that has been built up in recent years to supply drilling in places such as the Marcellus Shale and the Gulf of Mexico; “There’s still millions of tons of capacity set to come online, and it’s just going to be too much," says one analyst.
- Other steelmakers with key U.S. operations include NUE, STLD, MT and AKS.
- Gold Standard Ventures (NYSEMKT:GSV) says it is planning a public offering of 17M common shares, with an underwriters option to purchase additional shares totaling 15% of shares sold in the offering.
- GSV intends to use the proceeds to pay the balance due to Scorpio Gold in the acquisition of the Pinion deposit, fund additional Pinion drilling and exploration, conduct further exploration on the Railroad project, rectify the current working capital deficiency and for general corporate and working capital purposes.
- Shares halted.
- Peabody Energy (BTU +4.6%) is upgraded to In-line from Underperform with a $6.50 price target, raised from $6, at Imperial Capital, seeing BTU's free cash flow profile to equity improving over time as hedges roll off.
- The firm remains concerned about the impact of a dividend cut, coal headlines, and $3 natural gas in the U.S., but also says it is aware of a number of bullish factors for nat gas in H2 2015, including export demands that could improve.
- Crude oil futures finished lower in choppy trading, with Nymex crude sliding 1%, to close at $45.15/bbl and Brent sliding 1.3% to $48.16, but the day's headline grabber was the commentary from the OPEC Secretary General that he thought oil prices would stop declining at around current prices.
- Abdullah al-Badri told Reuters that crude oil prices may have hit bottom, and even warned of a risk of a future price spike to $200/bbl if investment in new supply capacity is too low.
- Defending OPEC's decision to cut output to retain market share, al-Badri warned that any oil supply cut would lead to spare production capacity, a lack of investment and an eventual shortage and price spike that could exceed 2008's rise above $147/bbl.
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, UWTI, USL, DWTI, DNO, SZO, OLO, TWTI, OLEM
- Cliffs Natural Resources (CLF -2.3%) slides near lows of the day following news that it will eliminate its quarterly dividend, as investors apparently agree with the contention of Wells Fargo's Sam Dubinsky that the move highlights credibility issues with management and CEO Lourenco Goncalves, who had said the dividend would be secure.
- The analyst notes CLF also provided a number of targets for the Canada restructuring, and that results have been disappointing - no buyer was found, shutdown costs are high, news of placing the asset in bankruptcy with minimal recourse continues to resurface but no progress has been made yet.
- Citigroup’s Brian Yu says CLF is a Sell as long as iron ore prices remain low.
- With just a week of bargaining left until the national contract for U.S. refinery workers expires, talks over a new agreement between the United Steelworkers union and lead oil company negotiator Royal Dutch Shell (RDS.A, RDS.B) appear to be making little progress.
- The USW rejected the first industry proposal on Friday, calling it "inadequate and offensive."
- The union is seeking annual pay raises double those of the last agreement, and wants work given to non-union contractors to go to USW members.
- Reltaed steel tickers: X, AKS, NUE, STLD, CMC, ATI
- J.P. Morgan cuts its 2015 aluminum and copper forecasts by ~10%, seeing rising production in China this year while demand remains lukewarm, and downgrades Chalco (ACH -1.7%) to Sell from Neutral.
- ACH has been one of the best performing stocks in China’s metals sector, but JPM says the underlying issue remains the company’s high-cost, loss-making assets within an oversupplied aluminum sector.
- With ACH's high debt and negative free cash flow, the firm also believes the likelihood of an equity raising has increased.
- Copper prices are bumping along at five-year lows, reflecting a worsening outlook for the global economy.
- ETFs: JJC, CPER, CUPM
- Freeport McMoran (FCX +0.5%) will start divesting its stake in its Freeport Indonesia subsidiary in two stages; the first will be a 10.6% stake this October followed by the remaining 10% next year.
- The update on divestment came as FCX and the government extended a six-month MoU which expired over the weekend that will allow for the resumption of copper exports despite a lack of progress in the construction of a required smelting plant.
- FCX now says it expects to export 500K metric tons of copper concentrate over the next six months from its Grasberg mining complex in Papua.
- Kinross Gold (KGC -1%) is downgraded to Sell from Neutral with a $2.80 target price at Goldman Sachs, which says KGC does not generate sufficient free cash flow and that the decision to allocate capital to the marginal Tasiast expansion project is questionable.
- The firm also removes B2Gold (BTG -2.4%) from its Americas Buy list and cuts the shares to Neutral, believing the positive momentum of the imminent cash flow harvesting of its Okjikoto investment will be offset by the risks of developing the Fekola project.
- Goldman raises its 2015 gold price estimate by 5% to $1,262/oz., but it expects weakness to settle in by Q3 and lowers its 2016 estimate 9% to $1,089, citing a tough macro environment including a strong U.S. dollar.
- ETFs: UGL, DGP, GLL, UGLD, DZZ, GLDI, DGL, DGZ, DGLD, TBAR, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
- Magazine Cover Indicator alert: The collapse in energy prices makes it to the cover of Time, which asks, "How long can it last? How low will it go?"
- WTI crude is flat on the session at $45.64 after slipping as low as $44.35 overnight.
- ETFs: USO, OIL, UCO, SCO, BNO, UGA, DTO, DBO, UWTI, USL, DWTI, UHN, DNO, SZO, OLO, TWTI, OLEM
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