Copper Miners Shrug off Q1 Disappointments on Bullish Outlook
Email Print Reproduction
Wed, Apr 25, 2012 Copper Articles, Feature Articles
Post by Shihoko Goto, Copper Reporter By Shihoko Goto — Exclusive to Copper Investing News
inShare.0
A fall in copper prices, coupled with labor unrest and lower-quality metal output, has put a dent in some of the world’s top red metal producers during the first three months of this year. However, looking ahead, mining groups are mostly upbeat about demand outstripping supply, and many expect prices to be on the rise as China’s appetite for copper remains steady and the global economy gains a steady foothold.
These circumstances mean that while Freeport-McMoRan’s (NYSE:FCX) performance in the latest quarter fell well short of past results, analysts were not fazed. Indeed, investors such as BB&T Capital Markets are maintaining a buy recommendation for the Arizona-based group. Last week, Freeport-McMoran reported that first quarter net earnings fell to $764 million, or 80 cents a share, versus $1.5 billion, or $1.57 a share a year ago. Revenue dropped to $4.61 billion from $5.71 billion during the same period in 2011. The disappointing results were, however, in line with the majority of analysts’ expectations, especially as the biggest publicly-traded copper producer struggled with a workers’ strike at its Grasberg mine in Indonesia in February. Copper output at Grasberg tumbled to 123 million pounds in the latest quarter, down from the 284 million pounds mined a year ago. Freeport-McMoRan expects its copper and gold mining operations at Grasberg to reach their full capacity of 240,000 tons a day by 2016.
As a direct result of the February unrest at the Grasberg mine, Freeport’s copper sales reached 827 million pounds, which was lower than the 875 million pounds it had expected. Looking ahead, the company expects 2012 copper sales to reach 3.7 billion pounds, about 100 million pounds lower than its earlier projection. Nevertheless, CEO Richard Adkerson is upbeat about the company’s outlook and anticipates that global appetite for the red metal will outstrip supply. During an earnings conference call with analysts, Adkerson said that “2012 appears to be another year of deficit in the copper market.” Demand from China, which accounts for 40 percent of the world’s copper market, is expected to be particularly strong as “investments in urbanization and infrastructure support that marketplace. All of those investments require significant amounts of copper,” Adkerson said.
As for BHP Billiton (ASX:BHP), its copper output rose three percent from a year ago to 281,400 tonnes, which included 87,700 tonnes of mined copper and 47,400 tonnes of copper cathode from its Escondida mine in Chile, the largest copper mine in the world. In February, BHP approved plans for a $2.6 billion expansion of Escondida with Rio Tinto (LSE:RIO); the two companies own stakes in the mine of 57.5 percent and 30 percent respectively. BHP also announced its decision to restart mining at its Pinto Valley site in Arizona, highlighting the company’s bullishness about future copper demand.
Copper output by Rio Tinto dropped 18 percent from a year ago to 119,500 tons due in large part to lower-grade metal production at its Kennecott operation in Utah. For the full year, Rio Tinto expects mined copper output to reach 600,000 tons and refined copper output to total 320,000 tons, which are below the projections of many analysts. The company’s much-ballyhooed Oyu Tolgoi mine in Mongolia will not add to its sales until 2013, even though the mine is forecast to produce up to 450,000 metric tonnes of copper per annum when it reaches full capacity. Still, CEO Andrew Harding anticipates robust global demand moving forward, with China continuing to lead the way, stating, “I am confident that growth in China will stay at the levels we’re currently seeing.”
AI
