Investopedia: Rio Tinto Looks To Make A Fresh Start

Apparently there's only so much even a generally passive board of directors can take before it feels the need to do something. Rio Tinto (NYSE:RIO) has announced a large impairment charge for 2012 and the replacement of its CEO - both largely tied to unsuccessful and wasteful expansion /capital allocation strategies. Now it is up to new management to chart a new path and improve returns in a more uncertain commodity climate.

Change at the Top
While the phrasing of the press release from Rio Tinto was sanitized and generic, I don't believe it is a stretch to suggest that Rio Tinto chose to fire Tom Albanese, its CEO of nearly six years. Certainly, Albanese's performance during his tenure gave cause to make a move.

Please click here for more:
http://www.investopedia.com/stock-analysis/2013/Rio-Tinto-Looks-To-Make-A-Fresh-Start-RIO-BHP-VALE-AA0124.aspx

Investopedia: Itochu - It's Not Easy, But It Might Be A Good Value

If you're a quant investor who loves to go through a business line by line, trading companies like Itochu (OTC:ITOCY) will either be a dream come true or a living nightmare. Like most trading companies, Itochu operates over 130 branches in over 60 countries, with about 700 subsidiaries and affiliates ... and it's not even the largest of the Japanese trading companies (trailing the likes of Mitsui (OTC:MITSY) and Sumitomo (OTC:SSUMY)).

While these large, far-flung enterprises are generally derided as hulking behemoths (and there's an element of truth to that), I wouldn't sleep on Itochu. The company has not only made a concerted effort to trim away underperforming assets, the company has also devoted increasing efforts and assets to building up its non-resource businesses, particularly those aimed at the Chinese consumer.

Please click below for more:
http://www.investopedia.com/stock-analysis/2013/Itochu---Its-Not-Easy-But-It-Might-Be-A-Good-Value-ITOCY-BHP-EWJ-DOLE0103.aspx

Commodity HQ: A Deeper Look At South Africa's Commodity Industry

South Africa is the largest economy of Africa, and it accounts for almost one-quarter of the continent’s GDP. The path to this status has not been an easy one, however, as the country languished under sanctions in the 1980s tied to the government’s apartheid policies. While South Africa has a relatively well-developed manufacturing sector by the standards of African economies (and developing economies in general), a meaningful percentage of the country’s economy still revolves around commodities.

Please follow this link to read more:
http://commodityhq.com/2012/a-deeper-look-at-south-africas-commodity-industry/

Seeking Alpha: Costs Rising At Freeport McMoRan, But Price Will Decide The Stock

While many analysts dutifully track production levels, cash production costs, and global inventory changes, sometimes that seems all but fatuous when it comes to stocks in the industrial materials sector. Although production disruptions and higher costs would indeed be bad for Freeport McMoRan (FCX), ultimately it's going to be the investor outlook for copper prices that moves the stock.

Read more here:
Costs Rising At Freeport McMoRan, But Price Will Decide The Stock

Investopedia: Peabody Tries Again To Get Macarthur Coal

Give credit where credit is due - Peabody Energy (NYSE:BTU) does not give up easily when management sees a valuable asset that could improve its business. In this case, the company is trying again to acquire Australian metallurgical coal miner Macarthur Coal (OTCBB:MACDY). While the price that Peabody is offering is a little high, it is not too out of line with recent deals, and the operating leverage that Peabody has should allow the company to make a decent return even at these levels. 


A New Bid for an Old Target
Peabody has been interested in Macarthur Coal and its 175 million tons of attributable coal reserves for some time now. About a year ago, Peabody bid A$15 a share for the company, but ultimately found rejection from the target's board (and its large shareholders).

Now Peabody is trying again, but this time it's bringing a buddy. ArcelorMittal (NYSE:MT) already owns about 16% of Macarthur and was previously not in favor of selling out to Peabody. Now Peabody wants the company to be a partner, and the companies have launched a joint 60/40 bid for the company with Peabody as the projected controlling partner.


The link below leads to the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Peabody-Tries-Again-To-Get-Macarthur-Coal-BTU-MACDY-MT-PKX-XSRAY-VALE-TCK-WLT-ACI-PVR0712.aspx

Investopedia: Joy Global - Minerals or Machines?

It is interesting to see that Joy Global (Nasdaq:JOYG), one of the world's leader manufacturers of mining equipment, is still trading at historically healthy multiples while many leading miners like Vale (Nasdaq:VALE) and Freeport McMoRan (NYSE:FCX) have been a little weaker. Then again, with long lead times for new equipment and fewer vendors to choose from (especially now with the Caterpillar (NYSE:CAT) acquisition of Bucyrus), it makes a certain amount of sense that Joy Global would be seen as the more stable, longer-term play. 


A Solid Second Quarter
Joy Global rebounded from a disappointing fiscal first quarter with a strong performance this time around. Revenue rose 19% and though it did not top the very highest analyst estimates, it was still a fair bit stronger than the middle of the range. Revenue growth was also relatively balanced; original equipment sales were up 10%, while aftermarket was up 24%. Growth was also split nicely between underground and surface; up 19% and 15% respectively, with underground still representing more than half the total business.

With stronger aftermarket equipment sales, it was not surprising to see stronger margins at Joy Global. The company picked up some momentum on the gross margin line and ultimately saw operating margin expand almost two points as operating income increased nearly 30% from the year-ago level. 



To continue, click below:
http://stocks.investopedia.com/stock-analysis/2011/Joy-Global-Minerals-Or-Machines-JOYG-VALE-FCX-CAT-BTU-RDC-RTP0606.aspx

Investopedia: Freeport Looking Shiny

Investors can easily lose themselves in the details of calculating PV-10, forecasting future inventory imbalances and interpreting drill hole data. But here is an alternative way to look at the mining sector - developing countries like China, Brazil and India need a lot of metal to develop their infrastructure and support their economies, and certain companies like Freeport McMoRan (NYSE:FCX) have both ample resources and attractive production profiles. While there is really no good way to completely tamp down the volatility that goes with commodity speculation, buying good companies at good prices seems like an approach worth exploring. 


Digging into the Fourth Quarter
Freeport McMoRan delivered another strong quarterly result. Revenue rose more than 21% from the year-ago level, fueled by higher price realizations for copper, gold and molybdenum. Freeport actually sold less copper (down 4% in pounds), but got nearly 31% more per pound for what it did sell. The same was true of molybdenum, while the company both sold more gold and got a higher price per ounce in the fourth quarter.

Freeport also managed to produce its ore more effectively in the fourth quarter. Overall consolidated costs came out to $0.53 per pound in the fourth quarter - down from $0.62 a year ago and lower than the company's full-year average of $0.79 per pound. (For more, see Copper Developments Continued To Heat Up In 2010.)


The link below will take you to the full article:
http://stocks.investopedia.com/stock-analysis/2011/Freeport-Looking-Shiny-FCX-TCK-RIO-BHP-VALE-TC-XSRAY0121.aspx

Investopedia: Will Aussie Flooding Rain On China's Parade?

Australia's summer has brought more than its usual wet season to parts of the country. This year the large northeastern state of Queensland has seen devastating flooding; the sort of flooding that leads to world news clips of people paddling boats through streets and animals seeking refuge wherever they can from the waters. Though the human toll of the disaster is likely to be severe for Australians, there are economic impacts that will stretch beyond the country and be felt throughout 2011. 

Trouble In Coal
Australia is a major producer of metallurgical coal, and mines in Queensland produce about half of the country's supply of this critical steel component. In particular, China is critically dependent upon Australia's met coal mines to feed its ever-hungry steel sector. With about 90 million tonnes of met coal already subject to force majeure, it would seem that steel customers in Asia are going to have to scramble (and pay up) to find the coal to fuel their blast furnaces.

BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), Wesfarmers and Xstrata all have major met coal operations in Australia. Even for those companies and mines that are relatively less affected, there is the issue of the ports and rails - flooding has damaged infrastructure and delayed ship loadings, and it will take some time to work through the backlog. While companies like Xstrata do have other producing areas (South Africa for Xstrata, for instance), there is only so much coal to go around. Likewise, for companies like Peabody (NYSE:BTU), which does have some operations in New South Wales (in addition to Queensland), there is only so much they can do to increase mine production in the short term.
 

Please follow the link below:
http://stocks.investopedia.com/stock-analysis/2011/Will-Aussie-Flooding-Rain-On-Chinas-Parade-RIO-BHP-BTU-TCK-ANR-MEE-CZZ0107.aspx

I realize this isn't really "news" anymore ... unfortunately, it got held up in queue. 

Heavy Metal

I'm wondering if this little mini-meltdown in commodity names has any real legs to it. One of my bigger regrets from 2010 is that I couldn't manage to part with any of my current holdings and make room for some quality "stuff" companies. If we could get a nice little correction in materials stocks, though, I'd be happy to do some cherry-picking. After all, I do happen to believe that there is a general link that goes something like "higher global growth = higher commodity prices" - at least for the next few years, at any rate, and before a lot of major new capacity/supply comes on line.

I am not all that interested in gold at this point. There are just too many nuts still beating the "you'll all be sorry when the dollar goes to zero" drum for me to be comfortable with it. I prefer to swim alone and there are just too many other people in the gold pool these days.

Silver and platinum are different stories, though, and I might be interested in Silver Wheaton (NYSE: SLW) or Impala (Nasdaq: IMPUY). I need to do more work on SLW, particularly with respect to what sort of future silver price is baked into the stock today. As for Impala ... well, this may be a name where I just have to swallow hard and hope for the best.

A lot of Impala's future value is predicated on resources in Zimbabwe and that looks like a dangerous bet to me. Zimbabwe's dictator Robert Mugabe (who is theoretically part of a "power sharing" arrangement so not technically a dictator) is a pretty awful fellow even by the low standards of Africa and I don't see how any investor can ever be completely comfortable with a thesis that rests on Mugabe respecting law and honoring contracts. Then again, maybe Mugabe would think twice about messing with a South African company; alienating the West is one thing as they are not likely to interfere directly in Zimbabwe's affairs. South Africa can, and given the right provocation, probably would.

Beyond this, though, there is a short list of names I'm following closely.

Freeport-McMoRan (NYSE: FCX) - owner of one of the best mines in the world, and a major player in copper and gold (as well as molybdenum).

OM Group (NYSE: OMG) - traditionally a player in cobalt, but trying to move into more advanced materials as well.

Vale (Nasdaq: VALE) - a huge Brazilian mining company with interests in iron ore, nickel, potash, and many other resources. I'm not sure any company in the world has a more aggressive expansion plan over the next five years than Vale.

Xstrata (XTA.L) - a global miner of copper, coal, nickel, lead, and alloys.

Thompson Creek (NYSE: TC) - long a player in molybdenum, the company is expanding into gold and copper.

Teck Resources (NYSE: TCK) - met coal, copper, zinc - Teck is leveraged to some of the best commodities for ongoing industrial growth in the developing world.

These are the major names I'm circling right now and hoping that the stocks fall to me. I'm also looking at a host of junior miners in a variety of metals (gold, zinc, potash, etc), but this post is already running on the longish side. When I come up with some actionable ideas there, I'll write a separate post.

OM Group is cheap enough to interest me today and Freeport McMoRan is oh-so-close. I'd need to see about a 10% pullback in the other names to get really excited, though, and maybe actually a bit more with Thompson Creek. Of course, trying to really get a firm sense of fair value on these companies is almost fatuous - I just generally try to pay less than 7x forward EBITDA and pay attention to the underlying commodity charts (as well as the growth in emerging economies and general investor sentiment). After all, why waste my time trying to be precisely wrong instead of vaguely right?

So maybe I get lucky and get to add some quality materials names at attractive prices. Time will tell...

Joy Global A Mix Of Performance And Scarcity

Caterpillar (NYSE:CAT) did Joy Global (Nasdaq:JOYG) no favors from a competitive standpoint when it agreed to buy Bucyrus, but almost certainly added scarcity value to what had already been a hot and popular (if volatile) way to play the growth in global commodity demand. That is bad news for value-oriented investors as it will be even trickier to identify the right times to buy and sell this stock. 

A Solid End to a Basing Year
Joy Global managed to produce a solid end to an unspectacular year. Revenue rose 9% from the year-ago level, with good balance between its two major operating segments. Underground equipment sales rose over 8%, while surface equipment sales increased 10%. Slicing the numbers differently, original equipment sales were basically flat, while aftermarket sales increased 16% and made up nearly 60% of revenue. That revenue figure was well ahead of consensus expectation, so it is unlikely that many investors will quibble with the fact that Joy Global produced a book-to-bill ratio of nearly one, as the company saw a 53% jump in order bookings.

Profitability was strong this quarter. Gross margin improved over 100 basis points from last year, while the operating margin increased by 250 basis points. That is powerful operating leverage relative to the revenue growth, though the company almost certainly got a benefit from the steel price environment that has bedeviled producers like Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD).

Please follow the link below:
http://stocks.investopedia.com/stock-analysis/2010/Joy-Global-A-Mix-Of-Performance-And-Scarcity-JOYG-CAT-NUE-VALE-FCX-DRYS-EGLE1216.aspx

More M&A In Met Mining?

Global growth is back; and so, too, is demand for commodities. With that in mind, many major resource companies are looking to position themselves for the next wave with a variety of project investments and corporate M&A activity. Following relatively closely on the heels of the deal between Walter Energy (NYSE:WLT) and Western Coal, Rio Tinto (NYSE:RIO) is trying to buy more metallurgical coal assets of its own by making a bid for Australia's Riversdale Mining. 

The Deal, As It Might Be
At this point, there is no "done deal" between the two companies, but Riversdale has acknowledged that Rio Tinto has made a bid for the company worth about $3.5 billion. While the Rio Tinto bid was reportedly at A$15 per share (a modest premium for a stock that has risen more than 50% since September), Riversdale shares were recently trading for more than A$16 - suggesting that investors expect (if not demand) a better bid or competing offers. (For more, see The Wacky Worlds Of Mergers And Acquisitions.)

Please follow this link for the complete article:
http://stocks.investopedia.com/stock-analysis/2010/More-MA-In-Met-Mining--RIO-WLT-VALE-BTU-BHP-TCK-FCX-AA1206.aspx

Vale Still Looks Iron-Clad

Experienced investors know that the market is always playing a game of "he loves me, he loves me not" when it comes to commodities and commodity companies like Vale (Nasdaq: VALE), but this Brazilian iron ore giant has nevertheless managed to produce impressive long-term gains for shareholders. While the company's ever-increasing size argues that it will be more beholden to global commodity cycles in the future, the company's growth plans suggest that further growth is still possible. 

A Hot Third Quarter
Much to the chagrin of steelmakers like U.S. Steel (NYSE:X) and POSCO (NYSE:PKX), iron ore prices are hot right now. Much to the delight of Vale shareholders, the company translated higher prices and production into more than double the level of last year's sales and 46% sequential growth. Earnings were also far higher on an annual basis, and up 63% sequentially, while adjusted EBTIDA nearly tripled annually and increased almost 60% sequentially.

Please follow the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Vale-Still-Looks-Iron-Clad-VALE-X-PKX-RIO-BHP-FSUMY1029.aspx

Copper ... It's Back

Gold gets all the attention, but copper has staged a pretty remarkable recovery from its early summer lows. After bottoming out below $2.80 a pound, the December contract is near $3.70 and the highs of 2008 are in sight. Considering just how useful copper is in so many industrial, construction and communications applications, an ongoing global economic recovery should be a solid demand driver.

Most of the major copper producers have already run up in concert with the price of the metal, but investors may want a refresher course on the major players with an eye toward buying the inevitable dips.

Freeport-McMoRan (NYSE: FCX)
These are the fat times for Freeport-McMoRan, as this company is not only a major copper producer, but a major gold miner as well. At current prices, the 83 billion pounds of copper and nearly 34 million ounces of gold in Freeport's reserves are worth over $800 per share. Of course, that does not include the costs of extracting those resources (nor the risk of lower future prices), but it should give investors a sense of the magnitude of Freeport's resources. Freeport has long since diversified its reliance upon its Indonesia mine to a tolerable level, and the company produces more than 10% of the world's annual copper output. (For more, see Taking A Shine To Copper.)

For the full article, please click on the link below:
http://stocks.investopedia.com/stock-analysis/2010/Copper---Its-Back-FCX-SCCO-TGB-TCK-RTP-BHP1011.aspx

Alcoa Gives A Good Start To Earnings

American aluminum giant Alcoa (NYSE:AA) has long held the distinction of being the first major U.S. company to report in any given earnings cycle. As aluminum is a major economic bellweather, these earnings get even more scrutiny from analysts and forecasters these days. Luckily for the recovery bulls, Alcoa came through this time. 

The Quarter that Was
Alcoa reported that sales jumped 22% from last year and 6% from the prior quarter. Of that 6% growth, two-thirds came from increased shipments. Gross margins improved significantly from the year-ago period, and the company continued a strong resurgence to profitability from both the prior quarter and the year-ago period.

For the full piece, please go to:

http://stocks.investopedia.com/stock-analysis/2010/Alcoa-Gives-A-Good-Start-To-Earnings-AA-BA-LPX-AXL-EMR0714.aspx

Compromise on Australian Taxing

No real surprise here - with the change in prime ministers in Australia, a compromise on the controversial mining tax was soon to come.

The deal that came out of this process is a pretty typical compromise, meaning both sides have reason to gripe. The tax was pulled back on minerals; it will now cover iron ore and coal at a 30% rate. Onshore oil and gas, though, will still carry the 40% rate. Keep in mind, this is 30/40% *after* the companies have earned a 6% return.

Certainly this is good news for BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RTP), Xstrata and the like. It's also exceptionally good news for producers of minerals like copper (Xstrata is big there), gold, zinc, rare earth elements, and so on.

Ultimately this still knocks Australia down a few rungs in the ranks of most mining-friendly nations, but it's clearly not as bad as it could have been. For the rare earth and gold miners, it's basically a win. Too bad, then, for companies like Fortescue and Macarthur which are much more leveraged to iron and coal, respectively, but 30% is still better than the original 40%.

Good-Bye Rudd

So, Australia's PM Kevin Rudd, he who presided over the idea to launch a new mining tax, has stepped aside and Julia Gillard is now the PM of Australia (the first woman to hold that job, I believe).

Rudd learned something that I would have thought to be completely obvious to an Australian - if you take on the mining industry, you're going to get run over and run out of town. Mining is a huge chunk of the Aussie economy, and a major part of the reason that Australia has come through this global recession in much better shape than most other countries.

Now, before holders of BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RTP), Xstrata and so on get too excited, keep in mind that Gillard is also Labor and arguably "more left wing" than Rudd. So, the idea that she is going to be a softy on mining is probably way too much to hope for right now. But, since it wasn't her idea in the first place, there may be more room for compromise without losing face or looking like she backed down from the fight.

One way or another, the mining tax is coming. That's bad news for the aforementioned companies, others like Barrick Gold (NYSE: ABX), Newmont (NYSE: NEM), Fortescue, Lynas, and so on. It's also still, arguably, good news for companies like Freeport McMoran (NYSE: FCX), Teck Resources (NYSE: TCK), Anglo American, Vedanta, and Vale (Nasdaq: VALE) who don't have big exposure to Australian assets.

Is it going to hurt Australia? Probably, but only to a point. While companies like Xstrata have certainly threatened to halt and curtail investments in Australian assets, these companies are going to face a pretty hard reality. Australia is a country with high-quality mining assets, very familiar rule-of-law, excellent stability and infrastructure, an educated homogenous workforce, and physical proximity to major markets like China and India. Compare that to a country like Congo or Mynamar and suddenly the extra tax doesn't seem so bad. After all, nobody in Australia worries about a government just seizing assets or an outbreak of bloody civil war.

Oh, and these companies that were so worried about the tax? Turns out that their stock prices are pretty much all more or less back (or better) than they were when news of this mining tax came out. So, lots of sound, lots of fury, but probably not a whole lot of long-term significance.