Big Q2 Earnings Miss for FNX Mining

| About: FNX MINING (FNXMF)

The early verdict on FNX Mining Co. Inc.'s (OTC:FNXMF) second-quarter results is not good. Analysts are calculating adjusted earnings per share numbers around C$0.11 - C$0.13. That is way below the consensus of C$0.36.

RBC Capital Markets analyst Adam Schatzker wrote that the main reason for the divergence seems to be the Levack complex. Tonnage was 50% higher than he expected, but grades and payabilities were 14% and 11% lower, respectively. Payable metal production (which is taken up by Vale Inco) was high because of the large tonnages, but that meant costs were high as well.

In a note, he wrote:

FNX was paid far less for its nickel at the Levack complex than we had expected. By our estimates, Vale Inco is paying in the 30% to 40% range for the nickel contained in the ore at the Levack Mine compared to the 60% to 70% we expected.

He added that FNX should perform better as it brings the Podolsky mine to full production and commissions the Levack Footwall deposit.

TD Newcrest analyst Greg Barnes noted that his assumptions on metal payable levels were "clearly too optimistic." For example, he expected precious metal payables of 22,400 ounces, nearly double the reported 11,582 ounces. His predictions on nickel and copper volumes sold were too low as well. But he also noted that FNX's share price sold off in recent weeks, and lowered earnings may already been built into expectations.

He wrote:

This morning's [Thrusday] results are likely to drive a significant downwards shift in Street expectations for earnings for the balance of the year and at least until management provides revised guidance on payable levels once the new terms with Vale Inco are finalized later this year.

FNX's earnings came out just two days after the surprise resignation of chief executive John Lill. Company founder Terry MacGibbon took his place.

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