Friday, April 24, 2015
- In another day of broad losses among in precious metals miners, Newmont Mining (NYSE:NEM) enjoyed a 6.5% surge following strong Q1 results that included impressive cost reductions in gold and copper production.
- J.P. Morgan analysts especially liked the strong first quarter at Batu Hijau and Yanacocha and the deferral of some capex that allowed NEM to generate $344M in free cash flows and pay down $200M in debt; the firm says full-year guidance could be raised if cost reductions can be maintained in Q2.
- Otherwise, it was not a good day for mining equities, following another drop in gold futures which tumbled to their lowest level in more than a month.
- NEM CEO Gary Goldberg expects gold prices to gain ~25% to $1,500/oz. by 2020 on rising demand from China and a weaker dollar; for now, Goldberg says the strong U.S. dollar is “definitely having an adverse effect” on gold prices, and he expects the dollar will “eventually come back off of its highs in the next couple of years."
- In today's trade: ABX -0.9%, AU -4.2%, GG -2.6%, SBGL -7.7%, GOLD -2%, AUY -2.5%, NGD -1.9%, GFI -4.4%, SLW -1%, PAAS -1.6%, EGO -4.1%, RGLD -2.7%, FNV -2.1%, KGC -0.4%, IAG -1.4%, BTG -1.9%, HL -1.9%, AGI -1.6%, AUQ -3.1%.
- Southern Copper (SCCO +2.7%) reports Q1 earnings of $0.35/share, beating the analyst consensus estimate of $0.29, on revenues that fell 6% Y/Y to $1.27B, below the $1.32B consensus, as copper prices fell.
- Q1 EBITDA declined 16.9% Y/Y to $556.1M, and margin fell from 49.4% to 43.6%.
- SCCO's Q1 copper production rose 8.9% Y/Y to 177.6K tons, and says it expects its copper output to nearly double to 1.15M tons in 2017 from last year.
- Separately, Peru's energy and mines minister says the government could ask SCCO to make additional changes to its $1.4B Tia Maria project after protests turned deadly this week.
- U.S. oil drillers took another 31 rigs out of service last week, falling for the 20th consecutive week and bringing the total number of active rigs down to 703 from their October peak of ~1,600, according to the latest weekly survey from Baker Hughes (NYSE:BHI).
- More than half of the oil rigs idled this week were in in Texas, as the state’s rig count fell by 19 to 393, down from 894 a year ago; of that number, a dozen were sidelined in the Permian Basin in west Texas.
- The total U.S. natural gas rig count rose by eight to 225 rigs; the overall total U.S. rig count declined 22 to 932 (four rigs were listed as miscellaneous).
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, TWTI, OLEM
- A mid-morning slide in gold has it lower by 1.5% on the session to $1,176 per ounce. The metal is down by about 2.5% for the week.
- After opening the year at about 1,200 per ounce and rallying to more than $1,300 by the end of January, gold reversed and bottomed at $1,150 in mid-March.
- In the news today is another soft economic report from the U.S. and comments out of Greece suggesting the government is prepared to make whatever concessions are necessary to prevent a default and/or EMU exit.
- GLD -1.6%
- ETFs: GLD, IAU, SGOL, UGL, DGP, GLL, UGLD, DZZ, GLDI, OUNZ, DGL, DGZ, DGLD, AGOL, TBAR, GEUR, UBG, GYEN, BAR
- China’s decision to scrap export quotas and taxes on rare earth elements may boost stalled demand for the products, Lynas (OTCPK:LYSCF, OTCQX:LYSDY) CEO Amanda Lacaze tells Bloomberg.
- Users have been drawing down on stockpiles while awaiting clarity over China’s policy on the export of the elements, Lacaze says.
- China, which produces ~85% of global supply, announced yesterday it will remove export tariffs on rare earths beginning May 1.
- Lynas, which said March was the first month in the company’s history in which it was cash flow positive, is seeking to restructure its debt before September, the CEO says.
- Relevant tickers: MCP, REE, AVL, GSM, GMO, OSN, REMX
- Vale (VALE +9.1%) continues to surge, headed for its biggest weekly gain in 16 years and gaining nearly 50% since Wednesday's announcement that it produced record-high levels of iron ore, nickel and other commodities during Q1.
- Also on Wednesday, BHP Billiton (BHP +3.4%) said it was curbing expansion plans and supplies from higher-cost mines dropped, easing concerns over a global glut and sparking iron ore biggest one-day price jump since 2012.
- "Vale is reacting to the rebound in iron ore prices,” said an equity analyst at CM Capital in Sao Paulo. “Most of Vale’s costs are fixed, so whenever there’s an increase in prices, there’s a direct impact on earnings.”
- Iron ore prices jumped 5.5% overnight to $57.81/dry ton and have rallied 23% since bottoming out at $47.08 on April 2.
- Also: RIO +1.6%, CLF +3.7%.
- Canada’s largest pension fund says it will vote against Barrick Gold’s (ABX -1.3%) executive pay structure and withhold its vote for the miner’s lead director and chairman of its compensation committee.
- The Canada Pension Plan Investment Board joins other investors in coming out against the advisory vote on ABX's executive compensation at next week's annual shareholder meeting; however, it also says it will vote in favor of other 12 ABX board nominees, including Chairman John Thornton, whose 36% pay rise last year has drawn much criticism given ABX’s weak stock performance.
- While CPPIB owns less than 1% of ABX shares, it is an influential voice in Canadian markets given its size and the emphasis it places on good corporate governance.
Thursday, April 23, 2015
- Two years after its much criticized $9B purchase of two energy exploration companies, Freeport McMoRan (NYSE:FCX) is considering spinning them off or selling a minority stake - although the company apparently would retain a “significant interest” in any spun-off entity.
- A possible IPO of stock in the oil and gas business could take place late this year and would highlight the stand-alone value of the business, Jim Flores, vice-chairman of FCX and CEO of the company’s energy business, said in today's earnings conference call.
- "If this is the path that Freeport ultimately chooses, it clearly indicates that management’s quest to find a strategic investor in its energy business has not worked,” says Jefferies analyst Christopher LaFemina.
- In its Q1 results, FCX reported a $3.1B loss for impairment of oil and gas properties, and said the cash margin in its oil division fell to $23.45/boe from $58.71 a year ago with revenue slumping by more than half to $547M from $1.2B.
- FCX's debt - now up to $20.3B - ballooned with its 2013 acquisition of two oil and natural gas producers, as it diversified its business beyond copper, gold and molybdenum mining.
- Chilean copper producer Antofagasta (OTC:ANFGF) agrees to sell its water division to Colombia's Empresas Publicas de Medellin for 596B Chilean pesos ($960M).
- The company is dependent on its Chilean copper output but also owned the water utility company in its home region; the utility contributed $64M, or 4%, of its 2014 pre-tax profits.
- Analysts at Citi say the water deal looks sound, with valuation on the sale at 13x EBITDA vs. the company’s corporate multiple of 8x.
- Newmont Mining (NYSE:NEM) +3.2% AH after reporting Q1 earnings that easily beat expectations, helped by higher copper production and sales at its Batu Hijau mine in Indonesia and lower costs.
- NEM says Q1 all-in sustaining costs for gold production fell nearly 18% to $849/oz. vs. $1,034/oz. in the year-ago quarter, while all-in sustaining costs for copper more than halved to $1.73/lb.
- Q1 gold production was largely flat Y/Y at 1.21M oz., while copper production rose to 37K metric tons from 24K metric tons a year earlier.
- NEM affirms its guidance for gold output to rise to 4.6M-4.9M oz. in FY 2015 and reaching 4.7M-5.1M oz. by 2017; projects copper production of 130K-160K metric tons in 2015 with output leveling out to 115K-135K metric tons in 2016 and 2017.
- The average Q1 realized gold and copper price fell to $1,203/oz. and $2.34/lb., respectively, vs. $1,293/oz. and $2.50/lb. a year earlier.
- Steel companies are higher after Nucor (NUE +3.5%) reported Q1 earnings that exceeded analyst estimates and came in above the company's own earlier guidance of $0.10-$0.15.
- NUE says overall Q1 operating performance at its steel mills segment fell significantly Q/Q, as expected, primarily due to lower selling prices and margins resulting from the high level of steel imports flooding the domestic market, which the company says accounted for 33% of the finished steel market in the quarter.
- NUE reports shipments to outside customers declined 9% and average selling prices dropped 5% during the quarter.
- NUE says its automotive markets remained strong in Q1, and continues to see improving demand in non-residential construction markets; it expects Q2 earnings will improve Q/Q with steel mill margins likely to increase but remaining under pressure because selling prices have not fully stabilized and imports remain high.
- Related tickers: X +4.5%, AKS +6.7%, MT +4.9%, RS +9.5%, STLD +3.5%, WOR +2%, CMC +2.7%.
- Barrick Gold (ABX +2.8%) says it will resume operations at its Lumwana copper mine in Zambia, reversing an earlier decision to halt production after the government softened a royalty-based tax system.
- Pres. Lungu’s administration recently approved a 30% profit tax and 9% royalty due to start July 1 - higher than the 6% sales levy of last year but better than royalties of 8% for underground mines and 20% for open-pit operations the government began charging in January.
- Separately, Chile's environmental regulator says he will seek new sanctions against ABX's Pascua-Lama gold and silver project for non-compliance with certain obligations; the regulator already fined ABX $16M in 2013 for not complying with environmental requirements at Pascua-Lama, which was put on hold indefinitely later that year.
- Reliance Steel (RS +9.8%) surges after reporting much stronger than expected Q1 earnings after two misses in a row and issuing upside guidance.
- EPS rose 17% Y/Y to $1.30, as demand was strong in all of the company's markets except for energy; automotive was very strong and RS believes this will continue, and aerospace and heavy industries remain relatively strong with demand expected to improve throughout 2015.
- Another benefit for RS was that a large Q1 project helped EPS by $0.05.
- RS sees Q2 EPS of $1.10-$1.15 vs. $1.10 analyst consensus estimate.
- China's Ministry of Finance says it will remove the 15% export tax on aluminum-alloy rods and strips, sending aluminum prices lower and hitting Alcoa (AA -3.3%) shares, and it also will cut taxes on rare earths, tungsten and molybdenum.
- Sterne Agee says that although the news will weigh on market sentiment, the impact could be muted given the small slice of the market, the current depressed price of aluminum, and a lack of rebates; however, Alcoa had indicated it was posturing for China to get tighter with regulations rather than looser.
- Freeport McMoRan (FCX -3.6%) opens sharply lower after reporting a Q1 loss and recording $2.4B in one-time charges, mainly for the reduction of the carrying value of its oil and gas properties.
- Q1 consolidated copper sales of 960M lbs. were slightly higher than the company's January estimate of 950M lbs., reflecting timing of shipments, and were higher than Q1 2014 sales of 871M lbs., reflecting higher volumes in North America, Indonesia and Africa.
- Q1 consolidated gold sales of 263K oz. were higher than the January estimate of 225K oz. and Q1 2014 sales of 187K oz., reflecting higher operating rates at PT-FI.
- FCX says it is taking actions to reduce or defer capex and other costs, and is evaluating funding alternatives to advance growth projects in its oil and gas business, including consideration of a sale of public equity for a minority interest in its oil and gas subsidiary.
- Capital spending is estimated at $6.5B for the year, including $2.5B for major mining projects and $2.8B for oil and gas operations.
- Protests in Peru’s Arequipa province yesterday against Southern Copper's (NYSE:SCCO) proposed Tia Maria copper mine left one person dead and many more wounded, and opponents say they will keep protesting until the mine project is canceled.
- Thousands of people marched and blocked roads as part of a month-long series of protests in the province against the proposed mine; Pres. Humala's government has supported the project, and sent thousands of police officers to keep order.
- A local newspaper says the government may declare a state of emergency in the areas around the conflict.
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) cuts its FY 2015 diamond output guidance due to weaker market conditions, but reaffirms its volume guidance for all other commodities after reporting a mixed output performance for its Q1.
- Anglo's De Beers diamond unit beat out iron ore to become the company's largest earnings driver last year, accounting for 42% of underlying net profit, but it is lowering full-year diamond output guidance to 30M-32M from a prior range of 32M-34M carats because of difficult diamond market conditions.
- Consolidated iron ore production, Anglo's second largest earnings driver last year, rose 19% to 13.4M tons in Q1; its Minas Rio mine, which began commercial production in October, produced 1.2M tons of iron ore in Q1.
- Anglo's Q1 copper output fell 15% to 171.8K tons, and consolidated coal output was broadly flat at 24M tons.
- Dow Chemical (NYSE:DOW) +1.5% premarket as Q1 earnings beat expectations, overshadowing a 14% Y/Y drop in revenue that was held back by lower selling prices, crude oil prices and negative currency impacts.
- Operating EBITDA margins rose nearly three percentage points to their highest level since 2005, as Dow's shift in focus to high-margin businesses such as performance plastics and infrastructure solutions from volatile commodity businesses paid off.
- Sales volumes rose in performance plastics, up 6%, and performance materials and chemicals and consumer solutions, both up 5%.
- Operating cash flow was $1.2B, a Q1 record and an increase of more than $660M from last year's Q1.
- Dow says it expects geopolitical and economic uncertainty throughout 2015, although it projects the oil market to be more favorable behind growing global demand in the coming quarters.
- China will scrap export duties on rare earths and some metal products.
- Export duties will be removed on a wide variety of metal products, including those on rare earths, molybdenum, tungsten and some aluminum products, effective May 1.
- Beijing is attempting to boost exports, which fell 15% year-over-year in March.
- Currently, China levies export duties between 15% and 20% on rare earths products while molybdenum products carry export duties of 5% to 20%.
- Stocks: MCP, REE, AVL, GSM, GMO, OSN, REMX
Wednesday, April 22, 2015
- Gold tumbled today to its sharpest single session loss in more than six weeks, after the strong U.S. existing home sales report that raised expectations for a Fed interest rate hike in June.
- U.S. gold futures for June delivery fell $16.20 (-1.4%) to settle at $1,186.90/oz., while silver fell 1.3% to $15.77.
- Among precious metals miners today: ABX -3.4%, AU -4%, GG -2.8%, SBGL -6.8%, GOLD -1.5%, AUY -3.7%, NG -1.9%, GFI -5%, SLW -2.1%, PAAS -3.5%, NEM -3.1%, EGO -1.4%, RGLD -2.1%, FNV -3.4%, KGC -1.7%, IAG -4.1%, BTG -2.5%, HL -3.8%, AGI -5.4%, AUQ -4.4%.
- ETFs: GLD, SLV, GDX, NUGT, IAU, AGQ, DUST, SIL, USLV, SIVR, SGOL, ZSL, UGL, GLDX, DGP, GLL, UGLD, DZZ, SLVO, GLDI, SGDM, DSLV, OUNZ, SLVP, DGL, DBS, DGZ, RING, DGLD, AGOL, PSAU, USV, TBAR, GEUR, UBG, GYEN, BAR, GDXX
Visit Seeking Alpha’s new Earnings Center
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs