Joy Global : Less Joy

Joy Mining Machinery Founder Joseph Francis Joy

Joy Mining Machinery Founder Joseph Francis Joy (Photo credit: Wikipedia)

Joy Global (JOY : NYSE : US$49.16), Net Change: -2.15, % Change: -4.19%, Volume: 7,519,489
Joy Global, a maker of mining equipment, reported a 36% slide in quarterly orders and warned of
sharply lower revenue for a further year as coal producers cut back capital spending in the face of a supply glut and low prices.
Net income fell 5% to $183.2 million, or $1.71 per share. Revenue dropped 5% to $1.32 billion.

Excluding items, Joy Global earned $1.70 per share while analysts expected earnings of $1.37 per share, excluding items, on revenue of $1.18 billion. Joy Global maintained its 2013 forecast for earnings of $5.60-5.80 per share.

The company, which derives two-thirds of its revenue from sales to coal miners, said it would increase cost cutting to offset the slide in orders. Management maintained its forecast of revenue for the year to October 2013 of $4.9-5.0 billion, down from last year’s $5.66 billion, and it warned the following year would be worse.

“The current outlook (for 2014) is unlikely to support annual revenue above $4 billion,” Chief Executive Mike
Sutherlin said in a statement. This is sharply lower than the previous average expectation from analysts for revenue of $4.57
billion for the year ending October 2014.

Teck Resources

English: This is a logo for Teck Cominco.

English: This is a logo for Teck Cominco. (Photo credit: Wikipedia)

(TCK.B : TSX : $33.28), Net Change: -1.17, % Change: -3.40%, Volume: 3,996,733
Teck Resources continued to slide on Friday. On Thursday, the diversified metals producer announced Q4/12 results that saw the company report $0.61 per share, well ahead of  consensus estimates of $0.48.

The earnings beat versus estimates was due to lower coal cash costs of $103 per tonne, higher copper sales volumes of 105,000 tonnes and lower depreciation, partially offset by higher copper cash costs of US$1.79 per pound.

TCK.B also provided initial 2013 guidance which overall was soft. For 2013 copper production guidance ranged 330,000-370,000 tonnes, while coal production guidance ranged 24-25 million tonnes. Both of these were below Wowkodaw’s estimates of 374,000 tonnes and 25.5 million tonnes respectively. 2013 coal cash cost guidance of US$107- 117/tonne was in line with estimates of US$113/tonne. 2013 capital cost guidance was higher at $2.0 billion, due to spending on the QBII project being brought forward. For Q1/13, TCK.B has already reached agreements to sell 6.0 million tonnes of coal at an average price of US$159/tonne.

In project development, the company continues to make good progress on the mill modernization at its Highland Valley Copper mine, the acid plant project at Trail and the advancement of TCK.B’s new mine development projects. On TCK.B’s quarterly conference call, CEO Don Lindsay discussed acquisition opportunities (from Seeking Alpha transcript), “We talked about, in the past, that iron ore would be a  good fit for our portfolio and it really would for all sorts of good reasons. I said in the last quarterly call that we’ve moved on because we just found the values too high.  But values have come down and also, as probably those who follow the industry closely, there’s a few new assets that have become available.”

Canadian Pacific Railway

An old CP Rail car outside the Brockville, Ont...

An old CP Rail car outside the Brockville, Ontario tunnel (Photo credit: Wikipedia)

Canadian Pacific Railway* (CP : TSX : $91.35)
All I didn’t want for Christmas was a pre-tax non-cash charge of $180 million.

CP Rail announced that it would be taking a fourth-quarter, pre-tax non-cash charge of $180 million on its option to build a rail line into the Powder River Basin (PRB). When CP acquired the Dakota Minnesota & Eastern railroad in 2007, it also acquired the option to build a 260-mile extension of its network into coal mines in the PRB.

Components of the charge include the option, engineering design costs, land and capitalized interest. It is CP’s intention to defer indefinitely plans to extend its rail network into the PRB coal mines based on continued deterioration in the market for domestic thermal coal, including a sharp deterioration in 2012.

CP is hosting an investor event this week, in which it is expected that the company will provide details on its profit improvement program.
Management wants to improve CP’s operating ratio (OR) to 65% (EBIT margin of 35%) over the next 3-4 years from the current roughly 78% OR and the company record OR of 75.5% achieved in 2006 and 2007. Canaccord  estimates that CP will generate an appealing 18% annual share price appreciation over the next 3 years if it achieves a 65% OR in 2016. This gain declines to a less exciting 12% at a 70% OR

Consul Energy update – Very Little Light In The Coal Tunnel

CONSOL Energy Park

CONSOL Energy Park (Photo credit: Wikipedia)

CONSOL Energy (CNX : NYSE : US$34.36)

October 16

Canary in the coal sector ?

CONSOL Energy provided the market with an operational and financial update for Q3/12.

The company announced that it expects to report a net loss for the quarter, due to a combination of marketing and operational issues. “While  precise figures are not yet available, it is clear that the company’s previously announced planned and unplanned mine idlings took their toll on third quarter earnings,” commented CFO William J. Lyons. “Fortunately, CONSOL Energy has the balance sheet to maintain market discipline. Even at the end of the quarter, our liquidity remained strong.

At September 30, 2012, we had cash of $231 million, no short term debt, and $2.3 billion of capacity under our credit facilities.” During the last several months, CONSOL announced a planned two-week idling of Blacksville Mine and a one-week idling of Robinson Run Mine, due to weak thermal coal markets. The Fola Mine was also idled. Subsequently, the company suffered the failure of two new conveyor belts at the Bailey Preparation Plant, which impacted production at the Enlow Fork and Bailey mines.

In early September, the company announced the idling of its premier low-vol Buchanan Mine for an estimated 30-60 days. CONSOL’s Coal Division produced 11.6 million tonnes during the quarter, including 0.8 million tonnes of low-vol metallurgical and midvol coal from the company’s Buchanan and Amonate Mines. CONSOL’s total coal inventory decreased during the quarter by 0.7 million tonnes to 1.7 million tonnes as of September 30, 2012. Thermal coal inventory decreased by 0.8 million tonnes during the quarter, as sales outpaced the scaled-back production .

 
 

Alpha Natural Resources / Coal Sector : Structural Change Underway

English: Logo for Alpha Natural Resources

English: Logo for Alpha Natural Resources (Photo credit: Wikipedia)

Alpha Natural Resources (ANR : NYSE : US$7.87)

Sept. 19

 

Alpha Natural Resources said it is planning to shut some cole mines while slashing 9% of its work force in the face of weak demand for coal. The moves are part of the company’s shift away from power-plant coal, where low demand and prices have made the fuel less and less profitable than steelmaking coal. The plan will see about 1,200 jobs cut and a 15% reduction in output from 2011 levels.

The U.S. market, where a 15% decline in coal demand is expected, is undergoing a structural shift, rather than a temporary one, the company said in a statement. It plans to increase its efforts to sell met coal as well as both steelmaking and power-plant coal overseas, where demand is stronger. All in, eight mines will be idled, resulting in 400 positions being eliminated. It will also consolidate its four operating regions in to two, which should save about $150 million

 

 

Coal Slumps – Rebound Talk – Only for Chumps ?

Coal mining

Coal mining (Photo credit: Toban Black)

Sept. 12

Is there a turnaround coming – anytime – soon?

JAMES RIVER COAL (US:JRCC) $2.94

Of the various sectors of the resource market from gold, silver, lead, zinc, oil, gas, you-name it, the one sector that has truly been bashed is that of coal. Coal prices have fallen off a cliff in the last while and several coal companies have gone bankrupt, thousands of workers have been laid off as the dirty, smelly coal industry is finding itself replaced by natural gas.

With the collapse in natural gas prices last winter because of the unprecedented warm weather, many power plants in the United States switched from using coal to using natural gas and right now, there is just as much natural gas being used to provide power as the once very dominant coal industry that used to provide 50% of the all power.

There has been some benefits such as some of the cleanest air in the United States in many years…they would be

one of the few countries that has suggested to have made the Kyoto agreement, whereas the rest of the world would

have failed. Who would have thought?

The chart on James river coal tells the tale.

 

. Is that an ugly chart or what? Many of them though now seem to be putting in a bottom as the feeling grows that once things get this bad, surely they can’t get any worse. Plus we are getting ever closer to winter with the hope that if natural gas prices do rise as some suspect this winter, coal might regain some of its market, or so the hope goes.

 

 

Joy Global- Less Joy At Global Expansion

Supply and Demand

Supply and Demand (Photo credit: D.H. Parks)

Joy Global

August 30

 JOY : NYSE : US$54.67

 Joy Global cut its outlook for 2012 for the second time this year as slowing growth in China and Europe and low natural gas prices in the United States continued to hamper coal demand and in turn demand for mining equipment maker’s products, such as giant shovels and draglines. A milder winter in the United States reduced demand for electricity, and low natural gas prices prompted power producers to move away from coal. Higher hydropower generation in China has also reduced coal demand.

 Looking ahead, Joy Global now expects fiscal 2012 adjusted earnings between $7.05-7.20 per share, down from $7.15-7.45 per share, previously. It also cut its 2012 revenue forecast to $5.45-5.55 billion, from $5.5-5.7 billion. Joy Global’s CEO, Mike Sutherlin, stated, “Although the U.S. market has progressed in line with our expectations, the deceleration of China demand has deteriorated international markets more quickly and severely than previously expected.”

Shares of the company have been hard hit this year, trading down ~45% since touching a 52-week high in late January.

 

 

Wilbur Ross On Coal’s Demise

 

'Billionaires for Coal' Thank Bank of America

‘Billionaires for Coal’ Thank Bank of America (Photo credit: Rainforest Action Network)

Arch Coal (ACI : NYSE : US$5.89)

Alpha Natural Resources (ANR : NYSE : US$6.90)

Market Vector Coal ETF (KOL : NYSE : US$23.43)

There is a lump of coal in every investor’s stocking – even billionaires.

 

Shares of Alpha Natural Resources and Arch Coal were in the red Monday after both were downgraded by a Bay Street brokerage. The brokerage says Alpha and Arch have the weakest balance sheets and lowest margins of Eastern Coal producers, potentially creating financing issues. With natural gas remaining cheap, over the next two to three years, higherpriced thermal coal contracts are expected to roll off and pricing will be marked to market to compete with natural gas pricing, or the contracts may not be renewed.

Either scenario would have negative impact on margins for both Alpha and Arch. Add to this expected closures in Appalachia, which the brokerage estimates makes up 94% of Alpha’s net present value and 62% of Arch’s valuation, and that Appalachian producers are among the highest-cost producers of met and thermal, the outlook for the companies’ margins looks increasingly bleak.

 Billionaire Wilbur Ross said that the shale-gas boom may extend the slump in the coal company. Ross said, “Last time the cycle was this bad, the problems were essentially just cyclical. This time  the major secular trends are far more likely to be unfavorable for years to come.” Low gas prices, environmental regulations and a mild winter have spurred mine closures as domestic demand reaches a 24-year low.

 

 

Natural Gas Stocks – Is There Life After Death ?

Natural Gas Rig - Suncor Energy

Natural Gas Rig - Suncor Energy (Photo credit: Suncor Energy)

NATURAL GAS (May 2012) $2.007 -0.061
NATURAL GAS (Dec 2012) $3.056 +0.003
NATURAL GAS (Jan 2013) $3.215 +0.007
BIRCHCLIFF ENERGY (T-BIR) $6.40 +0.44
FAIRBORNE ENERGY (T-FEL) $1.89 +0.09
BELLATRIX EXPL. (T-BXE) $4.12 +0.16
DELPHI ENERGY (T-DEE) $1.24 +0.04


 Truly ugly- but  there might finally be a bottom ?

Bloomberg and others today are taking a big look at natural
gas and the thought that at this price, it has to be at or
near a bottom…right? Take a look above at those forward
natural gas prices for the coming winter and it shows that
there might be hope.

That spread between current and
forward prices is close to a record divergence.
Bloomberg writes, “U.S. natural gas for delivery this fall is
trading at a record premium, signaling the fuel may be
poised to rebound from its worst quarter in two years because
of production cuts and rising demand from power
plants.”
Bloomberg continues, “Prices have tumbled 31 percent
this year as the fourth- warmest winter on record crimped
demand and output from shale formations increased. Energy
companies including ConocoPhillips and EnCana Corp.
(ECA) have responded with production cuts, reducing the
chances that supplies will overwhelm storage before winter.
Demand for gas from power plants will climb 16 percent in
2012, according to the Energy Department.”
Bloomberg adds, “Natural gas prices may rebound as
production growth slows and colder weather returns later in
the year,” Goldman Sachs said in a report this week. The
2011-2012 winter was the warmest since 2000 in the contiguous
U.S., according to the National Climatic Data Center in
Asheville, North Carolina.
About 51 percent of U.S. households use gas for heating,
Energy Department data shows.”

Coal may well see itself replaced by gas for
both environmental and price reasons.
Bloomberg points out, “American Electric Power Co.,
the biggest U.S. producer of coal-fueled electricity, said
April 20 that it used 62 percent more gas in the first quarter
than a year earlier because of low prices.
Southern Co. (SO), once the largest U.S. consumer of
coal, expects to generate 57 percent of its power from
natural gas by 2020 if low prices and new environmental
rules remain in effect, Thomas Fanning, Southern’s
chairman and chief executive officer, said during an interview
today.”
Is this an opportunity as there is a very long list of
gassy stocks that are at two, three or even five and sixfor-
one sales.
The chart of Delphi Energy shows you just one more
mainly gas stock, a long-time favorite of Josef
Schachter…but hey, there aren’t any gas stocks enjoying life.

What is your investment position on nat gas stocks?

AMP Portfolio Staying with Coal – Don’t Throw The Lumps

Image representing Peabody Energy as depicted ...

Image via CrunchBase

THESIS: I appreciate reader comments that coal is dirty energy masking as America‘s answer to supporting Arab despots. however, the simple fact of energy need and the existing infrastructure mean coal will be in use 50 years from now and solar power will still be talked about as an alternative.

Which companies has the AMP Selected  – read the book .

Here is an update on Peabody

Highlights:

  1. Initial forecast calls for 12 million tons to 13 million tons in Australian thermal coal shipments and 14 million to 15 million tons of Australian metallurgical coal sales.
  2. Expected U.S. thermal coal production already sold under contracts, limiting exposure to price weakness after unseasonably mild winter.
  3. Has placed Wilkie Creek Mine in southeast Queensland on sales block to reduce debt incurred from acquisition of Macarthur Coal.
  4. Management warns that 2012 will be a year of transition for Peabody Energy, as operational mines acquired from Macarthur Coal will require significant investment to upgrade equipment and remove waste rock.
  5. Management’s guidance calls for first-quarter earnings per share of $0.50 to $0.75, well below analysts’ consensus estimate prior to the call.

Peabody Energy Corp still managed to report record full-year results, including revenue of $7.97 billion (up 18 percent) and earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.13 billion (up 15.7 percent).

Management Forecast On The Economy

The firm’s U.S. operations (55 percent of 2011 revenue), which are located primarily in the low-cost Powder River Basin and the Illinois Basin, enjoyed a 5 percent uptick in coal shipments during the year, largely because of a record 109 million tons of low-sulfur coal output from the North Antelope Rochelle Mine in Wyoming.

During a conference call to discuss fourth-quarter earnings, Peabody Energy CEO Gregory Boyce indicated that the company expects the “two-speed global economy” to continue in 2012, with emerging markets such as China, India and Brazil leading the way and the developed world posting subpar growth.

In the fiscal year ending March 31, 2012, the gap between domestic supply and demand should reach 142 million metric tons and will only continue to expand. In 2011 India’s imports of thermal coal surged 35 percent from year-ago levels, to about 85 million tons.

With its extensive production platform in Australia, Peabody Energy is well-positioned to supply utilities in India and China with thermal coal. By 2015, the company expects to expand its annual thermal-coal production in Australia to between 15 and 17 million tons.

CAVEAT:  Depressed natural gas prices and efforts to reduce carbon dioxide emissions continue to prompt some utilities to switch to gas from coal. Rick Navarre, Peabody Energy’s chief commercial officer, told analysts that the company expects fuel replacement among U.S. power companies to eliminate between 35 and 40 million tons of coal demand in 2012, largely from mines in Central Appalachia.

After spinning off its assets in Central Appalachia, Northern Appalachia and less desirable parts of the Illinois Basin in 2007, Peabody Energy has little exposure to rising production and regulatory costs in these mature mines.

The company operates primarily in Wyoming’s Powder River Basin, which contains thick seams of low-sulfur coal that are relatively easy and inexpensive to mine, and the Illinois Basin, another low-cost region that produces coal with higher sulfur content. With many plants scheduled to have advanced scrubbers installed over the next few years, the addressable market for Illinois Basin coal is growing rapidly.

In addition to its low cost base, management’s prescient decision to sell the firm’s planned 2012 production under contracts will insulate earnings from the recent deterioration in prices. The firm has 45 percent to 55 percent of its planned 2013 production priced under contracts

P.S. Please feel free to forward this along to friends, family, co-workers, or anyone else you think might be interested in this market letter ( http://www.amp2012.com)

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