Why Select Metals and Mining Leaders Can Win in 2014

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As in 2013, the twin focus of the mining industry will be to lower costs and reduce capital spending. There are also likely to be some asset sales as the larger miners shed some of their “non-core” properties in an even greater push to post profits.

We reviewed the base metal miners about a month ago and concluded that copper miners may be the best bet to see some stock price appreciation in 2014. Now that we’re preparing for fourth-quarter earnings, here’s a look at the announcements we can expect in the next several weeks.

Aluminum

Alcoa Inc. (NYSE: AA) posted a 52-week high in late December just short of $11 a share. The stock has pulled back somewhat since, but remains about 16% higher than it was a year ago. Alcoa reports fourth quarter results on Thursday and is expected to post earnings per share (EPS) of $0.05 on revenues of $5.43 billion. Both are lower than last year’s fourth -quarter results, so the bar has been set pretty low. The company posted EPS of $0.11 in the third quarter, more than double the consensus estimate. Alcoa is valued at more than 25-times estimated 2014 EPS.

Rio Tinto plc (NYSE: RIO) will issue its preliminary operations review next Tuesday and report fourth quarter results on February 14th. Shares are down nearly 5.75% in the past 52-weeks, but remain closer to the annual high than to the low. London-based Rio is expected to post EPS of £5.05 on revenues of £52.13 billion. While aluminum only generates about half the revenue as Rio’s iron ore business, the company is the world’s second largest aluminum producer.

Copper

Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) is expected to report fourth quarter results in two weeks, and analysts have estimated EPS at $0.81 on revenues of $6.35 billion. The company’s stock is up about 5.5% over the past 12 months and the annual high came just last week. The company’s return to the oil & gas exploration and production business gets more credit for the boost than does either copper or gold production.

Southern Copper Corp. (NYSE: SCCO), unlike Freeport, is trading much closer to its 52-week low than to its high. The stock is down nearly 28% in the past year on falling copper prices. That trend is expected to continue through 2014. Analysts have estimated that Southern will post EPS of $0.46 on revenues of $1.51 billion, both figures well below last year’s totals.

Nickel

Vale SA (NYSE: VALE) hasn’t yet announced a reporting date for the fourth quarter, but the world’s largest publicly traded nickel miner is expected to post EPS of $0.64 on revenues of $12.41 billion. Those totals are significantly higher than last year’s fourth quarter totals. Demand for nickel is expected to pick up in 2014 and prices should rise beyond the current level of around $14,000 per metric ton. Over the past 12 months Vale’s shares have dropped nearly 31%.

BHP Billiton Ltd. (NYSE: BHP) shares are down more than 15% in the past year and the company has already closed one of its Australian nickel mines over safety concerns. No date has been announced yet for the company’s fourth quarter report, but the consensus estimates call for full-year EPS of $5.05 on revenues of $72.75 billion, sharply higher than 2012 results. Like Rio and Vale, iron ore sales contribute a much larger share of Billiton’s revenues.

Zinc

Teck Resources Ltd. (NYSE: TCK) has seen its shares lose nearly a third of their value in the past 12 months. The company has not yet announced a date for reporting fourth-quarter results, the consensus estimates call for quarterly EPS of $0.42 on revenues of $2.3 billion. For the full year, analysts are calling for EPS of $1.77 on revenues of $9.24 billion. Revenues continue to slide although an uptick in zinc demand from China may turn prices higher in 2014.

So much of what happens with these stocks always depends on commodity prices which in turn depend on demand and that depends on the global economic outlook. The global economy is expected to be better in 2014, but not by a large amount. That’s probably the best way to look at the base metals producers as well.

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