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Archive for the ‘Mining’ tag

Nice overview of cyclical metals and mining stocks

Martin T. Sosnoff at profiles cyclical stocks that tend to pop early in an economic rebound.

I am periodically intrigued by some viciously cyclical properties like U.S. Steel, Freeport-McMoran and Rio. We’re talking about steel, copper and iron ore. Worldwide industrial production governs the price cycle of these commodities. Fertilizer producers like Mosaic and Potash are tied to agricultural cycles in corn, wheat and soybeans.

Freeport is almost a pure copper play with some byproduct gold. Less than a year ago, copper prices surged above $4 a pound. Today, copper trades around $1.50. Interestingly, Freeport earns a little money even at $1.50 a pound copper.

Sosnoff notes that Freeport topped $127 last year and now is in the $20s. U.S. Steel was at $196 last year and now is around $28. Could they rocket back up to those levels? Perhaps, but…

I had no idea that U.S. Steel peaked at $196 last summer when its earnings power was projected above $18 a share. No cyclical stock ever sells for long at 10 times projected peak earnings, but obviously, Wall Street didn’t see a deep recession about to unfold. It now trades around $28. If oil prices ever recover, its tubular steel division again will earn serious money, but worldwide steel production is likely to fall 10% this year and then recover slowly.

Overall a nice read, with cool anecdotes about his mom’s moldy General Motors certificates.

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Tom Mangan posted at 9:58 am February 5th, 2009 |

Bolivia’s lithium bonanza

The New York Times has a story that must have mining companies’ mouths watering: the world’s largest reserves of lithium — a key ingredient in batteries that could power hybrid cars — lie beneath a salt flat in a remote corner of Bolivia, whose current president is Evo Morales, a leftist pal of Venezuela’s Hugo Chavez, who is bound and determined to make sure Bolivians are the primary beneficiaries of all this metal. I was counting the paragraphs till somebody denounced evil imperialists, and I wasn’t disappointed:

“The previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia,” said Saúl Villegas, head of evaporates, a division in Comibol that oversees lithium extraction. “Maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.”

Uh, Saúl, no matter what you do, if you mine the lithium, you’re going to have to sell it to somebody else. The lesson of history is that attempting to gore the capitalist pig just encourages said pig to feed at somebody else’s trough.

The story summarizes all the issues at stake between economically poor countries that are resource rich and would like to become economically prosperous without having to cut deals that let somebody else rake in all the profits. Could Bolivia become a model for building an industry that makes the nation and its people wealthier? Perhaps, but the fact that people making empty denunciations of imperialism are running things makes me skeptical.

(Nice thing from Caterpillar’s perspective: no matter who does the digging, they’re gonna need shovels).

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Tom Mangan posted at 11:16 am February 2nd, 2009 |

Less plastic, more metal

The Alcoa Consumer Electronics Blog has a correspondent at the Consumer Electronics Show who notes that big flat-screen TVs and other cool gadgets seem to be trending away from plastic and toward metals (the Alcoa folks are understandably happiest about the aluminum frames).

Well, Happy New Year! In 2009, not just one, but many OEMs have have introduced aluminum and perhaps other metals into their display frames. We are seeing a broad industry trend to use real metals in display frames and enclosures of notebook PCs and mobile phones as well. OEMs seem to particularly rely on metal as a design accent and “ribbon” around the periphery of the enclosure. Some OEMs, like Sharp, Panasonic, Toshiba, and Sony are showcasing stunning and innovative uses of aluminum within their display frames.

Beyond TVs, we are seeing other OEMs in both mobile phones and notebook PCs get creative with the use of metals and aluminum in their display enclosures. ASUS continues to introduce impressively designed notebooks and netbooks into the market. And RIM, which had a product portfolio last year almost entirely of plastic phones, has introduced multiple models this year that incorporate metals and/or aluminum.

Either of these trends reflects things happening in markets Caterpillar serves: plastics are oil-based, so last year’s absurd run-up in oil prices made metals look much more attractive, particularly on electronic doo-dads that have very narrow profit margins. Sadly, this blip could not prevent Alcoa from getting its clock cleaned today (down 7 percent at the moment; ouch) because of a lousy earnings outlook that’s also dragging Cat down.

Today’s bloodletting aside, product diversity is one thing you have to like about Cat: low oil prices might hurt the business for keeping drilling rigs running, but that might encourage more metals to be mined, triggering more demand for off-highway trucks and loaders (except when the entire commodities sector is getting beaten to smithereens in a demand-driven market downturn, which is what’s happening now).

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Tom Mangan posted at 11:31 am January 12th, 2009 |

Why a coup in East West Africa matters to work crews in East Peoria

Guinea, East Africa

Guinea, West Africa

I doubt many Americans have any idea where Guinea is. They probably think it’s where the chubby pet rodents come from. Actually, it’s an impoverished but mineral-rich East West African nation where there was a coup awhile back after a longtime dictator died.

This morning’s news roundup has Rio Tinto, one of the worlds biggest mining companies, trying to wheedle answers out of the new Guinea regime in regards to big mining projects it’s running there.

Anyplace Rio Tinto goes, Cat machinery presumably follows.

Cat’s connections to far-flung locales was one of the fascinating things about the company when I was growing up — Mom was always coming home with tales of people jetting off to Grimbergen or South Africa for something or another. China opening its economy to outsiders played a huge role in Cats renaissance after the near-death experience of the early 1980s.

Cat’s next big thing could happen in Africa — even after centuries of exploitation the continent has abundant mineral wealth. Of course the Africans would have to cease 10,000 years of bloody tribal rivalries, but hey, the 100 Years War eventually ended, too.

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Tom Mangan posted at 9:51 am December 30th, 2008 |

China buying up excess ore

Mining Weekly’s news feed included this Reuters story explaining the Chinese government is buying up excess metals for two reasons: 1) a bunch of China’s smelters have a bunch of it just lying around because demand is down; and 2) they can buy it up cheap because prices are so low.

At face value this is just another “oh the economy’s going to hell in a handbasket” story but if you dig a little deeper, it’s happy news for Cat in the long run because a) China is in effect putting a floor on the prices of a broad range of metals; and b) With all the surplus off the market, demand for mining gear ramps up more quickly when the economy turns around.

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Tom Mangan posted at 9:56 am December 19th, 2008 |