Freeport-McMoRan reported first quarter earnings this morning, and revenues are down nearly -20% from the same period a year ago, $4.6 billion this year versus $5.7 billion a year ago. Copper production is down from 950 million pounds a year ago to 833 million pounds this year and unit net costs have risen from $0.79 to $1.26.

In the earnings report, the CEO said that the company plans to increase copper production by 25% in the next 3 or 4 years, and he noted Freeport’s longer-term prospects:

We are highly positive about the long-term prospects of our business and markets. Our company is well-positioned with long-lived reserves and mineral resources, an attractive mid-term and longer-term organic growth profile and a strong financial position.

EPS for the quarter came in at $0.80, versus a consensus estimate of $0.86 and year-ago EPS of $1.57. Gold production was down by -46% although the average realized price per ounce was 21% higher.

Labor problems in Indonesia get some of the blame for the production declines and for higher unit costs. But the company did face higher labor costs in the Americas, and that will likely turn out to be a drag for some time to come.

Southern Copper’s unit costs in 2011 were just $0.41/pound and the company has said nothing yet about first quarter production, nor has it announced a date on which it plans to report earnings. The consensus estimate for EPS is $0.59 on revenue of $1.6 billion. That’s above last year’s actual EPS of $0.55, and is very likely wishful thinking. Southern Copper gets nearly 77% of total sales from copper.

Rio Tinto published its operational review earlier this week, noting that copper production at its Kennecott mine is down -18%, due to the lower grade ores being mined. The company expects the low-grade ores to persist through the first half of the year, but is planning to mine a higher grade area later in the year. The company also plans to shut down its smelter for 26 days in order to switch to equipment to handle the higher grade ores. The company did not say anything about costs or sales in its operations review.

BHP Billiton released an operational review yesterday, showing copper production down -10% for the first nine months of its 2012 fiscal year compared to the first nine months of 2011. The March quarter showed a boost of 3% compared with the same period a year ago, and sequential production was flat. Copper is less important to BHP, which is the world’s largest iron ore miner, but the company is expanding its copper production.

A recovery in copper prices depends almost entirely on demand from China, which takes about 40% of the world’s copper and is currently constrained by near-record inventories of around 3 million metric tons.

Warehouses at the London Metals Exchange, conversely, are more than half empty, which gives some hope for price rises. The bad news, though, is that prices for copper deliveries are higher for immediate delivery than they are for July delivery, a commodities market condition known as ‘backwardation’. Usually this market supports higher prices, but this time a lot depends on how fast and by how much China uses its stockpiles.

Freeport shares are up about 2% at $39.05 in a 52-week range of $28.85-$56.78.

Paul Ausick

Exports from Japan improve. (Reuters)

The Fed’s Beige Book reports concern about energy costs. (Reuters)

The World Bank expects China’s expansion to slow this year. (Reuters)

Rio Tinto (NYSE: RIO) and BHP Billiton (NYSE: BHP) ore output will drop because of low demand in China. (Reuters)

Apple (NASDAQ: AAPL) tries to fix malware problems with some Macs, but the PR fallout has been significant. (Reuters)

BlackRock (NYSE: BLK) will set its own bond trading platform to bypass normal markets. (WSJ)

The Justice Department claims Apple and five publishers illegally set e-book prices. (WSJ)

More fast-food chains sell company outlets to franchisees as a way to cut costs. (WSJ)

Las Vegas Sands (NYSE: LVS) launches a $4.4 billion casino complex in Macau. (WSJ)

The federal deficit narrows as tax receipts rise. (WSJ)

Competition in the locomotive business rises between General Electric (NYSE: GE) and Caterpillar (NYSE: CAT). (WSJ)

The CFO of JCPenney (NYSE: JCP) is pushed out. (WSJ)

Record labels and digital sites reach an agreement on royalties. (WSJ)

California solar-power developer BrightSource Energy will go public. (WSJ)

Volkswagen and BMW set sales records in the first quarter on improved luxury demand. (WSJ)

China Q1 auto sales fall 3.4% (WSJ)

The Greek crisis leaves Cyprus with huge debts. (NYT)

Amazon.com (NASDAQ: AMZN) will cut e-book prices. (NYT)

Johnson & Johnson (NYSE: JNJ) is fined $1.2 billion for its promotion of drug Risperdal. (NYT)

A report by the special inspector general for the Troubled Asset Relief Program says the Treasury has done a poor job of helping the housing markets. (NYT)

A board investigation into conduct by Best Buy’s (NYSE: BBY) former CEO Brian Dunn will continue. (NYT)

Spotify opens its streaming system to other websites. (FT)

Nokia (NYSE: NOK) may have to split its low-end handset business from its smartphone operations. (Bloomberg)

Douglas A. McIntyre

The unofficial closing bells put the DJIA up more than 52 points to 13,264.49 (0.40%), the NASDAQ rose more than 28 points (0.91%) to 3,119.70, and the S&P 500 rose 0.74% or more than 10 points to 1,418.89.

There were several analyst upgrades and downgrades today, including Amazon.com Inc. (NASDAQ: AMZN) raised to ‘buy’ at BofA/ML; Groupon Inc. (NASDAQ: GRPN) cut to ‘sell’ at Stifel Nicolaus and cut to ‘neutral’ with a $20 target price at BofA/ML; Rio Tinto PLC (NYSE: RIO) raised to ‘overweight’ at Barclays; Texas Instruments Inc. (NASDAQ: TXN) cut to ‘neutral’ at UBS; and General Motors Co. (NYSE: GM) started as ‘overweight’ at Morgan Stanley.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Digital Domain Media Group Inc. (NYSE: DDMG) is down -1.6% at $5.60; ClearOne Communications Inc. (NASDAQ: CLRO) is down -5.4% at $4.26; and Global Payments Inc. (NYSE: GPN) is down -4.2% at $45.49. Before markets open tomorrow we’ll get earnings from Comverse Technology Inc. (NASDAQ: CMVT) and International Speedway Corp (NASDAQ: ISCA).

Other standouts from today include the following stocks:

Groupon is down more than -16% at $15.31. The internet coupon company is restating earnings again. More coverage here and here.

Vringo Inc. (AMEX: VRNG) is up more than 84% at $3.04 after posting a new 52-week high of $3.09 earlier today. The ringtone company is merging with a patent protection firm. More coverage here.

Willbros Group Inc. (NYSE: WG) is up nearly 23% at $3.98. The oil & gas construction company had good news and bad news this morning. More coverage here.

Keryx Biopharmaceuticals Inc. (NASDAQ: KERX) is down more than -64% at $1.78 after posting a new 52-week low of $1.63 earlier. The drug company’s colorectal cancer treatment failed a trial. More coverage here.

Pinnacle Airlines Corp. (NASDAQ: PNCL) is down nearly 51% at $0.67 after posting a new 52-week low of $0.50 earlier. The US air carrier has filed for bankruptcy protection. More coverage here.

Stay tuned for Tuesday. Automakers will be reporting March sales throughout the day. San Francisco Fed President John Williams is giving a speech. We have also noted the following events on the schedule (all times Eastern):

• 10:00 a.m. – Factory orders
• 11:30 a.m. – 4- and 52-week bill auctions
• 4:30 – FOMC minutes released

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Paul Ausick

Amazon.com, Inc. (NASDAQ: AMZN) Raised to Buy at BofA/ML.

Brookfield Infrastructure Partners L.P. (NYSE: BIP) Cut to Neutral at BofA/ML.

Exelis, Inc. (NYSE: XLS) Cut to Neutral at JPMorgan.

General Motors Company (NYSE: GM) Started as Overweight at Morgan Stanley.

Groupon, Inc. (NASDAQ: GRPN) Cut to Neutral with $20 target at BofA/ML; Cut to Sell at Stifel Nicolaus.

IntercontinentalExchange, Inc. (NYSE: ICE) named as Bull of the Day at Zacks.

Linear Technology Corporation (NASDAQ: LLTC) Cut to Neutral at UBS.

PAREXEL International Corporation (NASDAQ: PRXL) Cut to Neutral at Stern Agee.

Parker Drilling Company (NYSE: PKD) named as Value stock of the day at Zacks.

PVH Corporation (NYSE: PVH) Raised to Outperform at Credit Suisse.

Rangold Resources Limited (NASDAQ: GOLD) Cut to Neutral at Nomura.

Rio Tinto PLC (NYSE: RIO) Raised to Overweight at Barclays.

Southwest Airlines Co. (NYSE: LUV) named as Bear of the Day at Zacks.

The Sherwin-Williams Company (NYSE: SHW) Cut to Neutral at BofA/ML.

Texas Instruments Inc. (NASDAQ: TXN) Cut to Neutral at UBS.

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JON C. OGG

Rio’s assets include the world’s largest producer of pink diamonds, the Argyle mine in Australia, plus shares in three other mines and polishing operations in Australia. According to a report in The Wall Street Journal, Rio’s diamond operations generated 11.7 million carats in 2011, but net income fell to $682 million from $727 million in 2010 as costs rose significantly and volumes fell at Argyle.

One company seeking to expand its diamond business is Anglo American plc (OTC: AAUKY), which expects to close its $5.1 billion purchase of an additional 40% of DeBeers later this year.

Rio’s diamond assets are carried on the company’s books at a value of $1.17 billion, but one analyst told the WSJ that a value of less than $1 billion is more reasonable, given that Rio has yet to complete a project in India and that the company’s Zimbabwe mine has “minimal value.”

Rio’s shares are up about 1.4% in the pre-market this morning at $54.06 in a 52-week range of $40.50-$74.99.

Paul Ausick

This somewhat anomalous situation is hitting BHP Billiton Ltd. (NYSE: BHP), Vale SA (NYSE: VALE), and Rio Tinto plc (NYSE: RIO) today, following comments on the steel and iron ore markets from a BHP executive to Bloomberg News:

We’re still confident in the long-term demand for commodities generally, of which iron ore is one, as one-third of the global population is urbanizing and the population is getting bigger.

BHP expects iron ore demand to continue growing through 2025 and the company plans to double its current production by 2020. BHP expects steel demand from China to grow from 700 million tons today to 1-1.1 billion tons by 2025.

But that’s not helping share prices today, as the reports of the current slowdown are weighing on the big miners’ stocks. BHP is down -3.4% at $72.95 in a 52-week range of $62.54-$104.59. Vale ADS are down -3.8% at $22.88 in a 52-week range of $20.46-$34.74 and Rio is down -3.9% at $54.90 in a 52-week range of $405.0-$74.99.

Paul Ausick

Cameco has announced that it will not raise its CDN$4.50/share bid for Hathor and will allow its offer to lapse tomorrow. Rio topped Cameco’s offer last week, putting in a bid of CDN$4.70/share, valuing Hathor at CDN$654 million.

Today’s share price rise in the other junior miners is no doubt based on the belief that Cameco still wants to acquire additional uranium assets now that it has lost Hathor. Denison, for example, has a market cap of just over $500 million and may be a reasonable substitute if Cameco decides to continue shopping around.

The acquisition of Hathor comes at nearly the same time that Kazakhstan has taken over as the world’s leading uranium producer. The Central Asian country now produces about 33% of the world’s uranium, more than the second and third largest producers (Australia and Canada) combined. The country also plans to build new enrichment facilities in a partnership with France’s Areva SA (OTC: ARVCY) in an effort to move up the value chain.

Cameco is already producing uranium in a joint venture in Kazakhstan and is seeking a production increase of about 33%, which would raise its share of production from project to 2.9 million pounds of uranium. That might be enough to forestall future acquisition plans.

Today, though, Cameco shares are up 6%, at $17.66 and Rio shares are up nearly as much, at $49.10. Shares of Denison are up more than 6.5%, at $1.30, in a 52-week range of $0.81-$4.52. Shares of Uranerz are up 12.75%, at $1.73, in a 52-week range of $0.87-$5.93 and shares of Uranium Resources are up 6.3%, at $0.85, in a 52-week range of $0.52-$3.98.

Paul Ausick

As is typical in a bidding war, competitor companies are also garnering some interest from the back-and-forth between Rio and Cameco as investors figure that the value of all uranium miners might rise. Uranium miners Denison Mines Corp. (AMEX: DNN), Uranerz Energy Corp. (AMEX: URZ), and Uranium Resources Inc. (NASDAQ: URRE) have all gotten a boost from the bidding, but perhaps not as much as might be expected.

Cameco originally offered C$3.75/share in cash for Hathor only to see Rio come in a few weeks later with an all-cash offer of C$4.15/share. Cameco raised its offer to C$.4.50 earlier this week, and now Rio has come back with an offer of C$4.59.

Denison, Uranerz, and Uranium Resources all saw share prices fall from the time of Cameco’s original offer on September 1st, bottoming out in early October. The shares got a bit of a boost when Rio’s offer was announced in mid-October, but shares of all three are still trading down from their levels of September 1st.

Uranium prices hit a peak of more than $70/pound in February, and have since fallen to around $55/pound. The disaster at Japan’s Fukushima Daiichi nuclear plant following the earthquake and tsunami in March and the subsequent decision by Germany to retire all its nuclear power plants has weighed on both nuclear plant builders and uranium miners.

Cameco, the world’s largest uranium miner, has experienced a near -50% drop in its share price since early March, largely as fallout from the immediate closure of 14 nuclear generation plants in Japan and Germany. Mining costs are also rising, putting even more pressure on profits.

The outlook for uranium demand is not very strong either. While it’s true that there are many new plants under construction, delays due to more regulatory reviews are being anticipated, even in China and India where construction has been growing.

The other impact of the current low price for uranium is that it stalls new mining projects. If demand picks up over the next several years, supply is likely to be weak due to cancellation of new projects.

That’s largely the reason that Hathor is worth the fight. The company is sitting on reserves that are estimated to be able to produce up to 5 million pounds of uranium annually. And regardless of a possible slowdown in production, uranium miners expect China’s nuclear building program to proceed as planned. Chinese demand is expected to grow, as is India’s, and Hathor’s uranium is already being produced and there’s plenty more to dig out.

There’s no doubt that Rio has deeper pockets than Cameco, and Rio’s latest offer totals about C$654 million. But Cameco has about $1.2 billion in cash and short-term investments in its war chest, so the battle may not be over quite yet.

Paul Ausick

Iron ore purchases have seriously begun migrating to the spot market, which is particularly hard on small miners, though less of a problem for BHP, Rio Tinto and Vale. These giant miners can take a longer view of market conditions, and all are spending to expand production to meet growing demand. And demand remains strong to some extent because spot prices are, in many cases, lower than contract prices.

If customer demand continues to be strong, and the iron ore miners are unable to negotiate advantageous quarterly contracts as spot prices decline, then expanded production hardly seems the answer. That is especially the case if production costs continue to rise.

The situation in copper production is similar. China, which is the world’s largest consumer of copper, has been slowing down its copper refining industry and pulling materials from inventory rather than buying more. At some point, the refiners will have to restock, but that day could be some time off. Volatile copper prices are, so far at least, keeping Chinese buyers from making large purchases.

Copper prices have risen from near $3 per pound at the beginning of the month to around $3.40 per pound today, though still well below late July prices of around $4.40 per pound. But unlike the case with iron ore, demand is not as strong and a strike at Freeport’s Peruvian and Indonesian mines is lowering production goals. BHP has delayed some deliveries originally scheduled for the second half of 2011 to next year as it recovers from strike at its Chilean copper mine.

BlackRock’s claim that the big miners are undervalued appears to have merit based on the current state of the market and on expected demand from China. The real question might be one of timing. Iron ore and copper prices are currently low and may still be searching for a bottom. When that bottom is reached is anybody’s guess, but there is little reason to believe that it will happen very soon.

Demand for iron ore and copper remains strong in India and Brazil, while demand from developed countries is steady at best. Without a demand spike from China, though, India and Brazil together will not push prices significantly higher. Increased production and lower customer acceptance of quarterly contract pricing could continue to weaken, if not erode, prices further.

All these mining company stocks posted a new 52-week low earlier this month, although all have begun to climb back. For the past 12 months, BHP is down the least, at 6.5% and Southern Copper is down the most, at 31%. And today, when the DJIA is down about 1.2%, all these miners, except Southern, are down nearly twice as much. BlackRock has not made many converts today.

Paul Ausick

Met coal currently commands a contract price of about $285/metric ton. The spot price for Australian met coal is around $250/metric ton, a -20% drop in just three months. That indicates that the contract price will fall as well, and probably below the spot price. Platt’s has quoted a broker who has projected prices of $235/metric ton in the first quarter of 2012, falling to $205/metric ton by the end of the year.

The lower pricing is the result of an anticipated slowdown in the global economy, particularly in China which has experienced a construction boom in the past few years. But tighter government restrictions on lending and an over-supply of vacant buildings have resulted in fewer construction projects.

Still, there remains speculation that other coal companies may be takeover targets. We noted a rumor in early September that British miner Anglo American PLC (OTC: AAUKY) may be preparing a bid for Walter Energy. Last week, BHP Billiton plc (NYSE: BHP) was said to be considering a $6 billion offer for Walter Energy, with Brazilian giant Vale SA (NYSE: VALE) also included in the mix.

Like many commodities stocks, Walter Energy’s share price plunge in early August, and posted a 52-week low of $57.62. Shares have recovered to over $75, but that’s still about 50% off the stock’s 52-week high. If a takeover offer is coming, now is probably a good time.

US miner Patriot Coal Corp. (NYSE: PCX) has been boosting its production of met coal, and the company has said it sees strong demand for the steel-making coal continuing from Brazil and India. Patriot’s share price is about 67% below its 52-week high, making it another possible takeover target now that it’s market cap has fallen below $1 billion.

Peabody’s shares were up more than 3% at this morning’s opening, at $39.39, in a 52-week range of $30.60-$73.95. ArcelorMittal’s shares were also up more than 3%, at $18.72, in a 52-week range of $14.77-$38.88. The Market Vectors Coal ETF (NYSE: KOL) is unchanged, at $35.14, in a 52-week range of $27.42-$51.87.

The elephant in the room that no one wants to acknowledge is that if the stronger coal players are using the recent weakness to acquire the weaker players, perhaps these companies are positioning themselves better for the next decade and beyond.  Coal demand is a often considered as a leading indicator because it is still used as a key measurement for power consumption and for building infrastructure equipment and structures.  As with many businesses in and around commodities, getting better scale and better geography can incrementally lower costs and that drives higher margins.   Coal players seem to be positioning themselves for far beyond the next few years.

Paul Ausick