Lackluster Earnings And Guidance Create An Opportunity In Alcoa

Alcoa (AA) is not the easiest stock to follow or own. While Alcoa enjoys a solid position on the cost curve for both bauxite and alumina and has made progress with its aluminum costs, there are a lot of moving parts to the model that management has little or no control over, including the hard-to-predict behavior of the Chinese government toward its smelters. Longer term, I'd like to see Alcoa pursue an upstream merger to further consolidate the industry and create more cost-cutting opportunities, but in the meantime, the outlook for aluminum in 2018 should some upside.

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Lackluster Earnings And Guidance Create An Opportunity In Alcoa

Seeking Alpha: Is It Time To Bottom-Fish For Vale SA?

If your company produces significant quantities of iron, you've had a tough year in the stock market. If your company only produces iron, it's been a pretty ugly year. Diversification has helped Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP), and Anglo American (OTCPK:AAUKY), but Vale (NYSE:VALE) and Fortescue (OTCQX:FSUGY) have seen their shares weaken significantly (down about 19% over the past twelve months) as iron prices continue to test predictions of just how low prices can fall before finding a floor.

It's dangerous to assume that commodity prices can't continue to fall once they've crossed the threshold where many/most producers operate at a loss (ask investors in met coal or uranium mining companies), but Vale is one of the rare iron ore miners that can still make money at current prices. With low prices starting to lead to production cutbacks and deferred mine expansion plans in various parts of the world, maybe this is a time to consider Vale shares. Brazil's election cycle still represents a risk, as does China's economy and the significant amount of low-cost iron supply available in Australia, but these shares do seem to hold some upside here.

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Is It Time To Bottom-Fish For Vale SA?

Seeking Alpha: Mount Gibson Iron Still Needs To Buy Its Future

I wasn't overly fond of Mount Gibson Iron (OTC:MTGRF) back in January of this year, as I wasn't enamored of the company's production outlook, its corporate governance, or the need to redeploy cash on the balance sheet to improve its mining assets. The shares have underperformed Fortescue Metals (OTCQX:FSUGY) since then (by around 10%), and while I do think Mount Gibson could better withstand further weakness in iron ore prices (and deploy its capital to add reserves/resources), I'm not as bullish on the shares.

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Mount Gibson Iron Still Needs To Buy Its Future

Seeking Alpha: ArcelorMittal Down, But Not Out

You'd be hard-pressed to find a steel stock that has done worse since my last favorable write-up on ArcelorMittal (NYSE:MT). The shares are down about 13% since then, about as much as Latin American steel companies Ternium (NYSE:TX) and Gerdau (NYSE:GGB), but worse than Nucor (NYSE:NUE) and much, much worse than Steel Dynamics (NASDAQ:STLD), AK Steel (NYSE:AKS), and U.S. Steel (NYSE:X).

That ArcelorMittal is underperforming AK Steel and U.S. Steel isn't shocking to me; less efficient players like U.S. Steel and AK Steel do better in recovering markets and both of those companies are more highly leveraged to the U.S. market (one of the stronger steel markets today). Some of the other relative performances are a little harder to explain; tempting as it may be to blame ArcelorMittal's woes on weak iron ore, even Vale (NYSE:VALE) and Fortescue (OTCQX:FSUGY) (both iron miners) have outperformed ArcelorMittal over the past three-plus months. With all of that said, I'm still bullish on ArcelorMittal as a play on better steel prices, production rationalizations, and a global construction recovery.

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ArcelorMittal Down, But Not Out

Seeking Alpha: Even With Weak Iron Prices, Rio Tinto Looks Like A Relative Bargain

It has long struck me as a little strange that Rio Tinto (NYSE:RIO) is considered one of the leading "diversified" miners when iron ore is about half of the revenue base and about three quarters of the EBITDA. Be that as it may, Rio Tinto is one of the largest miners in the world and one with a knack for developing world-class assets in iron, aluminum, and copper.

Though Rio's non-iron businesses haven't performed as expected and the company has largely retreated from M&A, the outlook is improving even amidst punishing declines in iron ore prices. Given that outlook and today's valuation, and much to my own surprise, Rio looks like one of the cheapest major miners and an interesting stock at today's level.

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Even With Weak Iron Prices, Rio Tinto Looks Like A Relative Bargain

Seeking Alpha: Paladin Energy Increasingly Leveraged To A Uranium Price Recovery

I haven't been very bullish at all about the prospects for uranium miners, as I believe investors have overestimated the near-term impact of Japan's plans to restart its nuclear reactors and China's intentions to add nuclear power. I'm not surprised, then, that uranium spot prices have broken through $30/lb, nor that Paladin Energy (OTCPK:PALAY)(PDN.TO) shares have fallen another 15% or so since my last article.

Like Ur-Energy (NYSEMKT:URG), I believe Paladin remains a very highly leveraged play on virtually any good news in the uranium sector. Paladin is going to have to get creative about its financing/liquidity options if spot prices don't increase into the $50's/lb, but the company does at least have a quality operating asset and good exploration assets if prices do recover. I do think uranium prices should find a bottom fairly soon and that the risk is to the upside, but investors considering Paladin Energy need to appreciate that outsized exposure to uranium price appreciation comes with outsized operating risk should prices stay below $50/lb indefinitely.

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Paladin Energy Increasingly Leveraged To A Uranium Price Recovery

Seeking Alpha: Iron's Free Fall Has Rusted Fortescue Metals

My bullish calls on copper producers Hudbay Minerals (NYSE:HBM), Taseko (NTGB), and First Quantum (FQFLV) have definitely worked out, but the same cannot be said of Fortescue Metals (OTCQX:FSUGY) as a roughly 30% decline in benchmark iron ore prices and wider discounts have sapped the company's earnings and cash flow leverage.

I believe Fortescue can stay free cash flow positive at or above realized prices of $70/mt, but there's a major valuation difference between "survive" and "thrive" and the behavior of Chinese steel mills is not encouraging for the near term. While there are smaller Australian iron ore companies with even more leverage to an iron ore price recovery, Fortescue is a good way to play that basic thesis. I believe the market is factoring in a pretty bearish long-term outlook for iron prices, but this is a risky stock given its reliance on stronger prices.

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Iron's Free Fall Has Rusted Fortescue Metals

Seeking Alpha: First Quantum Minerals Shooting For The Top

I can't complain about First Quantum's (OTCPK:FQVLF) (FM.TO) (FQM.L) performance since my Top Idea write-up in December of 2013, as the shares have risen almost 50%. First Quantum is far from the only base metal miner to do well over that stretch, as others like Hudbay Minerals (NYSE:HBM), Lundin (OTCPK:LUNMF), and Kazakhmys (OTCPK:KZMYY) have also done quite well. Even so, I love the company's ambitious plans to grow its way into the top ranks of global copper and nickel producers, as well as its demonstrated excellence in bringing mines into production on-schedule and close to budget.

I do believe that First Quantum is in a stronger position than it was eight months ago, but not nearly so strong enough to offer the same sort of bargain. I've moved my fair value estimate up a bit, but First Quantum looks more like a growth-oriented "hold" than a strong buy at this point.


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First Quantum Minerals Shooting For The Top

Seeking Alpha: Teck Resources Hunkering Down

Whether it's BHP Billiton (BHP), Glencore (OTCPK:GLNCY), or Anglo American (OTCPK:AAUKY), the basic story of weak commodity prices is dominating the investing environment. It's even worse for Teck Resources (TCK) as this Canadian mining company is very heavily weighted toward metallurgical coal and prices continue to scrape along the bottom. Teck Resources has the benefit of unusually low production costs for its major products (coal, copper, and zinc), but this low price environment is pushing the company to cut costs and curtail expansion projects and leading investors to worry about the dividend. I do like this stock as a way to leverage better base metals and an eventual recovery in met coal, but there is room to quibble about the fair value today.

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Teck Resources Hunkering Down

Seeking Alpha: Devon Has Come A Long Way, But Doesn't Seem Done Yet

Simplification and improvement has done some good for Devon Energy (DVN). Devon was once a diverse E&P with an unwieldy collection of assets, but a multiyear program of sales and purchases has created a focused onshore North American player with quality assets in the Permian, Barnett, Eagle Ford, Anadarko, Woodford, and Rockies, as well as underrated Canadian oil sands operations. As the shares have risen more than 50% over the past year, it is hard to say these improvements have gone unnoticed, but Devon still has some upside on an "as is" basis, as well as further self-improvement potential.

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Devon Has Come A Long Way, But Doesn't Seem Done Yet

Seeking Alpha: The Market Seems To Be In Tune With Southwestern Energy

Southwestern Energy (SWN) has emerged as one of the top natural gas E&P companies in the U.S., with large positions in both the Fayetteville and Marcellus regions. Southwestern has managed to lower its costs through significant integration, including company-owned rigs and midstream assets, but the company is looking at a significant slowdown in balance sheet-adjusted production growth (a major driver of value). Today's valuation looks pretty fair and reasonable, suggesting that upside is not surprisingly tied to better natural gas prices and/or positive exploration results in New Ventures acreage.

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The Market Seems To Be In Tune With Southwestern Energy

Seeking Alpha: Glencore PLC: A Mining Major With A Different Approach

Switzerland-based Glencore PLC (OTCPK:GLNCY) has certainly taken a different road on its way to becoming one of the world's mining majors. Glencore has no iron ore exposure at present and has instead built around quality base metal and copper assets. Glencore also has extensive agriculture assets and one of the largest physical marketing operations in the world. The shares do deserve a premium for that marketing business, and though the shares may not look like much of a bargain from an EV/EBITDA perspective, there's still credible value here.

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Glencore PLC: A Mining Major With A Different Approach

Seeking Alpha: Despite Challenging Conditions, Investors Buying Anglo American's Self-Improvement Potential

These are not particularly easy times for Anglo American plc (OTCPK:AAUKY). Copper prices have been holding up, but iron ore has been weak, met coal remains weak, and the company's platinum business has been hit by a major strike. Even so, Anglo's share price is within 10% of its 52-week high due in part to optimism regarding the long-term potential of the company's restructuring efforts. Anglo American shares don't look too expensive today, but investors do need to appreciate the elevated operating risk relative to names like Rio Tinto (RIO), BHP Billiton (BHP), and Glencore Xstrata (OTCPK:GLNCY).

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Despite Challenging Conditions, Investors Buying Anglo American's Self-Improvement Potential

Seeking Alpha: Petra Diamonds Looking To Capital Investments And Global Demand To Move Higher

Diamonds are not necessarily an investor's best friends, but Petra Diamonds (OTC:PDMDF) shares have treated investors pretty well in just the past three months, shooting up more than 50% on increased optimism about the company's expansion plans and cost structure. The shares have probably overshot the mark in the short term, but Petra's collection of mines (and its plans to improve their productivity and value) certain bear watching.

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Petra Diamonds Looking To Capital Investments And Global Demand To Move Higher

Seeking Alpha: Allana Potash Offers Substantial Potential Rewards For Significant Risk

Junior gold miners are common enough and those investors who follow the mining sector closely are probably familiar with other juniors in minerals like copper. Junior potash miners are not nearly so common, though, as potash mining has historically been dominated by the likes of Potash Corp (POT), Uralkali, and Mosaic (MOS). Canada's Allana Potash (OTCPK:ALLRF) (AAA.TO) is looking to shake that up a bit, though, as the company hopes to move forward with a low-cost asset in northeastern Ethiopia.

I suspect that readers are bombarded with enough warnings about risk that they gradually become immune to them. I have to note, though, that Allana is a great deal riskier than average. This company's market cap is just over $100 million and the company is going to need to raise substantial sums of capital to turn its ambitions into reality. Although Allana's ADR shares carry the dreaded "F", the liquidity is actually pretty good (though still less than 20% of the Canadian shares).

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Allana Potash Offers Substantial Potential Rewards For Significant Risk

Seeking Alpha: Improving Costs, Clean Balance Sheet Not Sparing Pan American Silver

If you mine anything, 2013 was probably a painful year and if you mine precious metals, it was a horror show. The Market Vectors Gold Miners ETF (GDX) is down more than 50% over the past year, the Junior Gold Miners ETF (GDXJ) is down more than 60%, and the Global X Silver Miners ETF (SIL) is down about as much as the GDX (52%). It's not hard to figure out why, as falling prices, rising costs, and debt-laden balance sheets have all contributed to a mass exodus from the space.

In the rush to the door, I think Pan American Silver (PAAS) may have been unfairly trampled. It is absolutely true that PAAS is going to be hard-pressed to attract investor interest if silver prices keep falling, but there is at least the downside protection of an improving cost structure, lower capex, and a clean balance sheet. Trading just under its net asset value, I believe Pan American may be a good place to look for those investors who still want to own a silver miner.

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Improving Costs, Clean Balance Sheet Not Sparing Pan American Silver

Seeking Alpha: Vedanta Undervalued, But For Some Valid Reasons

Many investors spend a great deal of time and energy trying to figure out if a stock is cheap, but maybe not always enough time asking why that stock is cheap. Vedanta Resources (OTCPK:VDNRF) (VED.L) is a good case in point. This natural resources company is not only quite diversified, along the same lines as BHP Billiton (BHP) and Rio Tinto (RIO), but it is also focused on one of the major emerging market economies (India). Unfortunately, that focus and reliance upon India has not always been to the company's advantage, and investors have likewise been put off by the company's capital structure, group structure, and the general bearishness hitting the materials/resources sector.

I'm inclined to argue that the discount is a little too extreme. I don't believe India is as great of an opportunity as some, but I do believe common sense will dictate an improving operating environment for the company. Additionally, I believe that Vedanta has made good progress on simplifying its confusing group structure. With a fair value in the neighborhood of GBP 10.00 to 11.00 and a solid dividend, I think this is a name at least worthy of consideration for investors looking to gain exposure to a rebound in the resources sector.

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Vedanta Undervalued, But For Some Valid Reasons

Seeking Alpha: Execution And Commodity Risks Have First Quantum At An Appealing Price

Mining stocks have generally been varying shades of horrible this year, with major producers like BHP Billiton (BHP), Rio Tinto (RIO), Vale (VALE), Glencore Xstrata, and Vedanta all in the red for the last 12 months. The reasons aren't all that hard to uncover, as commodity prices have softened on weaker Chinese demand and new projects adding supply to the market. So too with First Quantum (OTCPK:FQVLF) (FM.TO), as this growing copper miner has seen its shares retreat as copper prices have fallen more than 10% in the past year.

It's not just falling copper prices hurting First Quantum. The company is looking to deliver copper production growth greater than any other major miner over the next four years, but investors are rightly concerned about the prospect of the company taking on billions more in debt to fund the development of its crown jewel Cobre Panama project. I believe that the market is undervaluing First Quantum's demonstrated ability to deliver on mining projects, and while I cannot and will not wave off the risk of further copper price erosion, I believe investors are getting enough compensation in the stock's valuation today.

For those investors looking to investigate First Quantum more thoroughly, I'd suggest doing so under the Canadian and British tickers (FM.TO and FQM.L, respectively), as the company's U.S. ADRs are of the dreaded "F" variety.

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Execution And Commodity Risks Have First Quantum At An Appealing Price

Seeking Alpha: If There's Any Life Left In Iron, Fortescue Ought To Do Well

Is the commodity supercycle dead, or just sleeping? That's more than just a rhetorical question when it comes to Australia's Fortescue Metals Group (OTCQX:FSUGY).

On one hand, it seems hard to believe that China will re-accelerate its infrastructure and capital spending programs to such a degree as to bring back the commodity glory days of just a few years ago, not to mention there's a lot more supply online now to deal with it. On the other hand, Chinese steel mills still source a lot of their iron ore needs from high-cost domestic mines that simply cannot compete with Brazilian and Australian imports.

In the case of Fortescue, I believe there are multiple factors that should drive a higher multiple. The company has passed the point of peak spending and peak debt, and yet offers an attractive simultaneous one-two punch of rising output and falling costs. Fortescue also has a rich pool of resources that should continue to add to reserves, not to mention a strong owned and operated infrastructure network. Although the shares have already nearly doubled from the midsummer lows, I believe Fortescue could climb another 40% and still be undervalued relative to its larger peers in iron ore mining.

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If There's Any Life Left In Iron, Fortescue Ought To Do Well

Investopedia: Alcoa Running Hard To Go Nowhere

Another quarter is in the books at Alcoa (NYSE:AA), and although I think management continues to do a good job with its downstream operations and rationalizing its upstream cost structure, all of it matters little in the face of persistent price weakness in aluminum. As has been the case for a while now, Aloca looks undervalued on both an EV/EBITDA and NAV basis, but the relentless erosion in aluminum prices makes it difficult to have much faith in those metrics.

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