HudBay Minerals Update

HBM : TSX : C$8.81
Target: C$12.00

HudBay Minerals is an integrated Canadian zinc and copper producer with operating assets in Manitoba, and development or exploration properties elsewhere in Canada, in the U.S., and in Peru.
All amounts in C$ unless otherwise noted.

Metals and Mining — Base Metals and Minerals
HBM on January 8 released 2013 production and 2014 guidance. 2013 copper production’s miss against guidance is the aberration. 2014 production guidance is consistent with our forecasts. HBM confirmed Constancia’s budget and schedule, and provided surprisingly high 2014 production guidance (pre-commercial production) of 5,000-10,000 tonnes.
Our revised 2013-15E EBITDA forecasts are C$23 million, C$129 million, and C$485 million, which compare to our previous forecasts of C$32 million, C$129 million, and C$485 million. Our revised 2013-15E adj. dil. EPS forecasts are C$0.03, C$0.16, and C$1.08, from previous forecasts of C$0.07, C$0.15, and C$1.08.
Action and valuation
We are maintaining our BUY recommendation and our 12-month target of C$12.00, which is based on the average of: i) 5x our 2015E EV/EBITDA, which would imply a share price of C$11.97; and ii) our NPV10 estimate of C$11.62, (which includes C$7.79 for Constancia).
Next potential catalyst and investment risks
We are forecasting Q4/13 adjusted diluted EPS of negative (C$0.02) based on: i) payable zinc and copper sales of 24,400 tonnes and 7,800 tonnes, ii) realized zinc and copper prices of US$0.93/lb and US$3.31/lb (before treatment and refining charges, but after provisional pricing adjustments), and iii) after by-product credit costs of +US$1.41/lb of copper.

Goldman Sachs Forecasts Multiple Commodity Drops – Gold to $1000

The risks are strongest for iron ore and follow increases in supplies, analysts including Jeffrey Currie wrote in a report yesterday that identified the New York-based bank’s top 10 market themes for the coming year. Price pressures will mostly become visible later in 2014, the analysts wrote, forecasting that bullion, copper and soybeans will decline to the lowest levels since 2010.

Commodities tracked by the Standard & Poor’s GSCI Index lost 5 percent this year, led by corn as supplies surged, and precious metals on expectations the Federal Reserve will taper stimulus. Goldman described the forecast losses for iron ore, gold, soybeans and copper as significant, and said that they could help weaken currencies in producing countries, including the Australian dollar and South African rand.

“Last year, we pointed to the ongoing shift in our commodity views, ultimately towards downside price risk,” the analysts including Currie wrote. “The impact of supply responses to the period of extraordinary price pressure continues to flow through the system.”

Gold, which was at $1,245.90 an ounce on the Comex at 4:33 p.m. in Singapore, will drop $1,050 at the end of next year, Goldman said in the report, restating an earlier forecast. Currie said last month that gold is a “slam dunk” sell for next year as the U.S. economy extends its recovery.

Annual Drop

Bullion is headed for the first drop since 2000 this year as investors cut holdings. Futures lost as much as 2.6 percent yesterday after the Fed signaled that tapering may start in the months ahead, according to minutes from its October meeting.

Soybeans are seen by Goldman at $9.50 a bushel by the end of 2014, from $12.7775 in Chicago today, while corn will retreat to $3.75 a bushel from $4.255. Copper will drop to $6,200 a ton from $6,989.25 on the London Metal Exchange.

A global seaborne iron ore surplus will emerge next year as supply increases over the second and third quarters, Goldman Sachs said in a separate report last month. Prices will average $108 a ton in 2014, it said in the Oct. 18 note. The raw material averaged $135 this year at Tianjin port in China.

While downside risks for energy prices will increase next year, the outlook is more stable than for iron ore, gold and copper, Goldman said in yesterday’s report. Brent crude is seen at $105 a barrel at the end of 2014 from $108.01 today.

U.S. Recovery

“We expect the long-awaited shift towards above-trend growth in the U.S. finally to occur, spurred by an acceleration in private consumption and business investment,” the Goldman analysts wrote yesterday. At the Fed, “we expect a gradual tapering in bond purchases to begin, most likely in March.”

Rio Tinto

Protesters target Rio Tinto AGM

Protesters target Rio Tinto AGM (Photo credit: Eyes on Rights)

Rio Tinto (RIO : NYSE : US$55.89)
Turquoise Hill Resources* (TRQ : TSX : $7.87)

According to Bloomberg, Rio Tinto is considering a temporary halt to construction work at the Oyu Tolgoi project, the world‟s biggest copper project under construction, in Mongolia, to protest the government’s demands for a larger stake in the project and new mining royalty rates.

In October, RIO rejected a second move by Mongolia to renegotiate a 2009 investment agreement for the development of Oyu Tolgoi, which is currently the world‟s biggest copper project under construction. RIO has a 66% stake in Oyu Tolgoi through its 51% interest in Turquoise Hill. The
Government of Mongolia has a 34% stake in Oyu Tolgoi.

The project was expected to process first ore through the concentrator by year of 2012, with first concentrate production to follow in January 2013. The commencement of commercial production is expected three to five months thereafter (April and June). Completion of a feasibility study on the underground Oyu Tolgoi Phase 2 expansion is expected by June. At ~US$6 billion, Oyu Tolgoi is the largest single investment in the history of Mongolia

Imperial Metals Corp.

Imperial Metals Corp. 
III : TSX : C$13.81
BUY Target: C$22.00

Imperial Metals is a Canadian-based company with interests in two mature producing copper mines in British Columbia (Mount Polley [100%]; Huckleberry [50%]). More importantly, the future and value driver of the company resides in its 100% interest in the very large but undeveloped Red Chris copper-gold project in northwest BC, which is permitted and scheduled to enter production via an open-pit in late-2014.

Investment recommendation

Imperial Metals released its Q4/12 operating results and issued 2013 production guidance that were both above our forecast (Q4/12 Cu production of 13.9 million lbs was 6% above our forecast of 13.2 million lbs; 2013 Cu production guidance of 58.5 million lbs was 11% above our
forecast of 52.6 million lbs) largely due to higher planned grades and recoveries at Mt. Polley.

We are reiterating our BUY rating and increasing our 12-month target price to C$22.00 per share (from C$21.00 per share). Our revised C$22.00 target price is based on a 25/75 weighting of 5.0x our 2013E EV/EBITDA (C$6.50 per share) and 1.0x our revised 10% NPV estimate (C$27.32 per share).

Our BUY rating is supported by the company’s 100% interest in the Red Chris Cu-Au deposit, which in our view, represents one of the only world class assets in the hands of a Canadian mid-tier producer.
Investment highlights
 We now forecast 2013E-2016E Cu production of 59m lbs, 74m lbs, and 143m lbs (previously 53m lbs, 65m lbs, and 135m lbs).

Imperial is currently trading at a relatively compelling 49.4% discount to our 10% NPV estimate of C$27.32 per share versus a 16.4% discount for
the mid-tier producer peer group average.

First Quantum Minerals

First Quantum Minerals

First Quantum Minerals (Photo credit: Wikipedia)

First Quantum Minerals

(FM : TSX : $20.92)

First Quantum Minerals announced its Q4/12 production and introduced the market to its 2013 production guidance. For Q4/12, copper production increased by 26% q/q to 84,918 tonnes and gold production increased by 48% q/q to 64,383 ounces.

Higher grades from Kansanshi, increased production from Guelb Moghrein and first production from Kevitsa were the reasons for the solid quarter. On the nickel front, the company produced 10,096 tonnes from its Ravensthorpe and Kevitsa mines. The company’s new Kevitsa mine in Finland also increased FM’s platinum and palladium production to 6,123 ounces.

For 2013 the company issued operating guidance for copper in a range 302-330,000 tonnes, for gold in a range of 190,000-215,000 ounces and for nickel in a range of 40,000-45,000 tonnes. The company also announced 2013 cash cost guidance for copper of US$1.50-1.60 per pound. Along with working on increasing production, FM is also in a pitched battle for takeover Inmet Mining (IMN), whose board today advised its shareholder to reject FM hostile bid .

Freeport McMoran Update

Grasberg Mine Tailings - 2003

Grasberg Mine Tailings – 2003 (Photo credit: SkyTruth)

Oct 23

Freeport McMoran (FCX : NYSE : US$40.58)

Red metal update. 

Freeport-McMoran Copper reported Q3/12 net income of $0.86 per share, compared with net income of $1.10 per share for the same quarter last year. Consolidated sales from mines for Q3 totalled 922 million pounds of copper, 202,000 ounces of gold and 21 million pounds of molybdenum. Looking ahead, the company projects its annual copper production to increase by one billion pounds annually over the next three years through higher-grade ores at Grasberg in Indonesia and through the execution of brownfield expansions in the Americas and Africa.

The company commented that it has been in discussions with the Indonesian government to extend its contract of work agreement beyond 2021 and is considering listing a portion of PT Freeport Indonesia, its Indonesian unit, Chief Executive Richard Adkerson said on the company’s earnings call. Freeport is the world’s largest listed copper mining company and operates the world’s third-largest copper mine, Grasberg, in Indonesia. The company signed an agreement known as a contract of work, with Indonesia in 1991 for 30 years with options for two 10-year extensions. The current contract of work expires in 2021.



JP Morgan Top Stock Picks

August 22

United States Steel

Ticker: X

Industry: Metals & Mining

Target Price: $43.00

Short Interest as % of Float: 26.0%

United States Steel engages in the production and sale of steel mill products. It was founded in 1901 and is headquartered in Pittsburgh, Pennsylvania



Sean Gallup/Getty Images

Ticker: AA

Industry: Metals & Mining

Target Price: $12.00

Short Interest as % of Float: 9.0%

Alcoa engages in the production and management of primary aluminum, fabricated aluminum, and alumina. It was founded in 1888 and is based in New York, New York.


Cliffs Natural Resources

Cliffs Natural Resources

Cliffs Natural Resources operations in Michigan

Copyright 2011 Cliffs Natural Resources Inc.

Ticker: CLF

Industry: Metals & Mining

Target Price: $55.00

Short Interest as % of Float: 10.2%

Cliffs Natural Resources is a mining and natural resources company. It was founded in 1847 and is headquartered in Cleveland, Ohio.

Micron Technology

Ticker: MU

Industry: Semiconductors

Target Price: $8.50

Short Interest as % of Float: 7.2%

Micron Technology engages int he manufacture and marketing of semiconductor devices worldwide. It was founded in 1978 and is headquartered in Boise, Idaho.


Ticker: SRCL

Industry: Commercial Services & Supplies

Target Price: $101.00

Short Interest as % of Float: 5.6%

Stericycle provides regulated waste management and related services. It was founded in 1989 and is headquartered in Lake Forest, Illinois.




Ticker: CTAS

Industry: Commercial Services & Supplies

Target Price: $46.00

Short Interest as % of Float: 5.2%

Cintas provides corporate identity uniforms and related business services to approximately 900,000 businesses globally. It was founded in 1968 and is headquartered in Cincinnati, Ohio.


F5 Networks

Ticker: FFIV

Industry: Comm. Equipment

Target Price: $99.00

Short Interest as % of Float: 4.8%

F5 Networks provides delivery networking technology that optimizes the delivery of network-based applications

Read more:




Rio Tinto Looks To China For Recovery – Not the U.S.

English: Oyu Tolgoi project - Copper and Gold ...

English: Oyu Tolgoi project – Copper and Gold Mine in South Gobi Deutsch: Projekt Oyu Tolgoi – Kupfer- und Goldmine (Photo credit: Wikipedia)


August 8

Global miner Rio Tinto PLC stuck to its $16-billion spending plans, despite first-half profit falling by a third, predicting a modest pickup in the Chinese economy later this year that should stimulate demand for iron ore.

The world’s second-largest iron ore producer on Wednesday joined rival diversified miners Anglo-American and Vale, in reporting earnings hit by falling prices and stubbornly high costs.

Rio said underlying profit fell 34 per cent to $5.2-billion, as a sharp drop in iron ore prices took its toll despite steady volumes. That was above market expectations of a sharper drop to $4.9-billion, however, thanks to a better performance from its aluminum and energy divisions.

Vale, the world’s largest producer of iron ore, last month reported its worst second quarter since 2007, blaming slowing steel demand.

Prices for steel making ingredient iron ore have tumbled this year from 2011 highs, with benchmark prices touching their lowest in 2-1/2 years last week as demand from China, the world’s largest iron-ore consumer, eases. China’s economy grew by 7.6 per cent from a year earlier in the second quarter, the slowest pace in three years.

Rio, like its peers, is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook. But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own plans to date.

Arguably the most China-dependent of the majors given its focus on iron ore, Rio struck a more optimistic note than some rivals, pointing to a likely pickup in Chinese demand in the fourth quarter as government stimulus measures take effect.

The miner also said it saw signs that stifling cost pressures were starting to ease.

Chief executive office Tom Albanese stuck to a Chinese growth forecast of 8 per cent this year, broadly in line with economists’ predictions, and said order books were full – despite weak sentiment in Europe and a fragile U.S. recovery.

“We are still selling at full volume,” he said, adding the impact of measures to revive the economy would start to filter through. “We are seeing, and some of our customers would be anticipating, that as we move towards the latter part of the year, there would be some pickup in demand.”

Rio Tinto committed in June to spend $4.2-billion expanding its Pilbara iron ore operations in Australia and Mr. Albanese said on Wednesday that the group’s Guinean iron ore project Simandou – eyed by the market as a prime candidate for delays given the country’s instability – was on track for first commercial production in 2015.

Mongolian copper mine Oyu Tolgoi, potentially one of the world’s largest, is also on schedule, the miner said.

Rio’s growth projects are considered more incremental and therefore less contentious than those of rivals including BHP Billiton, which has said it is reviewing the sequence and pace of its major investments.

The optimistic outlook and above-forecast numbers helped Rio’s shares higher, trading up 1.8 per cent at around 0950 GMT at 31.88 pounds, outperforming a 0.6 per cent rise in the sector.

“The biggest two things that stand out are the price impact – the impact of lower prices reduced earnings by about $1.9-billion – and costs,” RBC analyst Des Kilalea said.

“Cash costs took 7 or 8 per cent of earnings which is quite a hit, not unexpected, but it just shows you the cost pressures that these guys are under.”

Costs, a bane for miners as they have failed to come down in line with price drops, remained a dent for Rio, particularly in mining “hotspots” like Western Australia and Queensland. But the miner said external pressures were starting to ease.

Rio, refocusing its portfolio, has put non-core aluminum assets and its diamond businesses up for review and potential sale. The miner said it was considering all options and had interest for both segments and the entire businesses.

“We are not going to be selling them from a position in a corner,” chief financial officer Guy Elliott said.

Elliott also dismissed market speculation that Rio could join its Canadian diamond mine Diavik with BHP Billiton’s nearby EKATI, also on the block.

Copper Rally ? – The Good News Is From China

China Minmetals

China Minmetals (Photo credit: Wikipedia)

First Quantum Minerals* (FM : TSX : $18.21)
Inmet Mining* (IMN : TSX : $39.89)
Freeport McMoran (FCX : NYSE : US$33.67)

August 1
China boosts infrastructure spending plans, again. Copper rose to the highest level in more than a week as plans in China to
increase spending on railroads and other projects boosted the outlook for demand in the world’s largest consumer of the
metal. Bloomberg noted that this is the second (China infrastructure spending) boost to be announced in July.

China announced that it plans to spend approximately US$74 billion (14% more than initially planned) on railroads and bridges in 2012. In
another bullish story yesterday, Xstrata, the world’s fourth-largest copper producer, reported that its production of mined copper
declined 18% to 354,612 tonnes from H1/11 to H2/12. Last week, Minmetals Resources, a unit of China’s biggest metals trader,
stated that new stimulus spending in China is set to lift the global copper market, as reported by

Copper prices have decreased 25% over the past 12 months, largely on weakening demand in China, the world’s largest importer and consumer of the metal. Despite the softening in the copper market in the first part of 2012, Minmetals highlighted that recently things have started to turn. “Total exchange stocks at the end of the second quarter were lower than at the start of the April and amounted to only seven days’ global consumption,” Minmetals said. Adding that premiums paid for imported copper cathode also improved toward the end of June. “Recent fiscal stimulus actions in China are expected to improve credit tightness and there are also expectations of increased spending on infrastructure and housing in the second half of 2012, resulting in improved Chinese copper demand,” the Minmetals stated.

Teck – Preparing for FMG Takeover ( China JV ?)

English: This is a logo for Teck Cominco.

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

Teck Resources* (TCK.B : TSX : $32.77)

All posts may be reposted by readers . please credit the site.

I do not like to repeat rumours – so listen closely -

The Australian has reported that Teck Resources has filed an SEC registration notice to raise US$6 billion in debt, fuelling the rumour mill that the company wants to increase its stake in Fortescue Metals Group (FMG)

. This is certainly not the first time that Teck has been the subject of speculation of a potential takeover; back in April rumours began circulating that Teck was the mystery buyer of a 2.89% stake in FMG in February 2012.

 A Bay Street analyst acknowledged that the company does not need the money to fund near-term debt maturities and/or fund internal growth projects. However he continues to believe that FMG is too large a target for Teck to try and acquire on its own. FMG’s market cap is currently US$15 billion, but the enterprise value is much higher at ~US$20.5 billion (total debt of ~US$8 billion less cash of ~US$3 billion). As of the end of Q1/12, Teck only had cash of $3.8 billion. The US$6.0 billion shelf would only take them to ~$10 billion.

 He also points out that given FMG is an Australian-listed company, its hard to see the ability to use shares here. But a Chinese partner and a 50/50 JV structure could be the strategy.

FMG is the world’s largest independent iron ore producer  with current capacity of 55 million tpa expanding to 155 million tpa by mid-2013. Strategically, FMG would be a great fit for Teck. That said, the analyst believes that the very bad memories of the debt-structured Fording acquisition at the start of the 2008 financial crisis would put pressure on Teck stock on any transaction.




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