najdorf

4 Unbelievable Stock Charts: Freeport-McMoran, Alcoa, Peabody and Goldman Sachs

You might be right about FCX having a comeback, but you're wrong that commodity prices don't matter. The company is completely levered to commodity prices. What is their book value constituted of? Inventory, property, plant & equipment, and goodwill (not much cash on hand). The inventory consists of commodities and commodity-derived products. The properties, plant and equipment are valuable for no reason other than that they produce commodities (remote Indonesia? desert in the American SW? Congo?). The goodwill is from acquisitions of other companies equally levered to commodity prices - what's this worth if they have to shut down the mines they acquired?

Come on. If your only business is selling copper, gold, moly, etc. and the price of those items declines, your earnings will decline. If they decline far enough you'll go bankrupt. What kind of liquidation of FCX's assets could you run in this climate? You really want to bet that there's anything left over for equity-holders if we don't see a commodity comeback? The only thing keeping FCX afloat is that they come across some gold while mining minimally profitable copper.

How Low Can Mining Stocks Go? (Part II)

qwerty - Have you even looked at metal prices? Most are getting close to 2002 levels. Have you looked at how much money mining companies were making at those prices in 2002? What makes you think that the recent expectation of sky-high pricing has led them to operate at a level of efficiency that will allow them to profit more successfully at those low prices? What makes you think that debt taken on to do acquisitions at higher prices will not cripple the companies?

I'm not saying I know where metal prices or mining stocks are going, but there certainly are some risks to worry about.