Strong environment for Mining companies in Wall Street Transcript Canadian Natural Resources Issue
Tuesday October 17, 10:44 am ET
67 WALL STREET, New York--October 17, 2006--The Wall Street Transcript has just published its Canadian Natural Resources issue, a report offering a timely review of the sector to serious investors and industry executives. This 108-page feature contains an industry commentary through in-depth interviews with top management from 26 firms. The issue also contains an "Off the Record" Review of Management by Management. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Canadian paper and forest products, Strong Currency, Lumber producers, Building material producers, Rapidly falling demand, Rapidly declining and depressed pricing, Private money, Share buybacks, Dividend reinstatements, Special dividends, Special acquisitions, Large pools of capital, Private timberlands, Fail-safe method, Earnings momentum, stock picks and stocks to avoid.
Companies include: Aeroquest International Limited (AQL.V), Aber Diamond (ABER), Alcan Aluminum (AL), Afri-Can Marine Minerals Corp. (AFA.V), Ascendant Copper Corporation (ACX.TO), Globestar Mining Corporation (GMI.V), Bluerock Resources Ltd. (BRD.V), Bactech Mining Corporation (BM.V), Bell Resources Corporation (BL.TO), First Quantum (FM.TO); Hud Bay Minerals (HBM: TSX); Dejour Enterprise Ltd. (DJE.V), IPSCO( IPS), Callinan Mines Limited (CAA.V), IBI Corporation (IBI.V), Cameco (CCJ), Compliance Energy Corporation (CEC.V), Lion Ore (LIM.TO), Domtar (DTC), Gitennes Exploration INC. (GIT.TO), Kenrich-Eskay Mining Corp. (KRE.V), International Royalty Corporation (IRC.TO), Tck Cominco (TCK), Houston Lake Mining INC. (HLM.V), West Fraser (WFT: TSX), Interfor (IFPa.TO); Weyerhaeuser (WY), MeadWestvaco (MWV), Boise, NewPage, Canfor (CFP.TO), Polaris Minerals Corporation (PLS.TO), Major Drilling Group International, INC. (MDI.TO), Robex Resources Inc. (RBX.V), North Atlantic Resources Ltd. (NAC.TO), Constellation Copper Corporation (CCU.TO), Sino-Forest (TRE.TO), TimberWest Forest (TWF-UN.TO), Acadian Timber Fund (ADN-UN.TO), Fraser Papers (FPS.TO), Canfor Pulp Fund (CFX-UN.TO), SFK Pulp Fund (SFK-UN.TO), Abitibi (ABY), Cascades (CAS.TO), Tembec (TBC.TO), Norbord (NBD.TO), Sirios Resources Inc. (SOI.V), Spur Ventures Inc. (SVU.TO), and Strathmore Minerals Corporation (STM.V), Yukon Zinc Corporation (YZC.V). Analysts Include: Richard Kelertas, Dundee Securities Corp., Paul Quinn, Salman Partners Inc., John Hughes, Desjardins Securities.
In the following brief excerpt from the 108 page report, John Hughes discusses the outlook for the Canadian Mining sector and prospects for investors.
TWST: How has the group done from a business perspective so far this year?
Mr. Hughes: Extremely well. It has been another good year for mines and metal as a whole. On the commodity front, we've had one of the better years in terms of being able to hold historically high pricing, which I think has been quite a surprise to the market. That is all during a period when we've had some overriding concerns on the macro level with regard to the world economies, more specifically to the United States and where they may be going, given the housing bubble having burst. We're seeing that happen before our eyes, and we are concerned about the negative impact that may have in terms of the future direction of the US economy.
Of course, that leads into a demand discussion on the metals. We've been up against some negative news in terms of where demand may be going. At the same time, we've held what are historically high price levels on the commodities that we cover - copper at $3.50 a pound, aluminum staying toward the top at $1.15 a pound, nickel with a phenomenal summer period at about $13 a pound on the three-month price, and zinc at $1.55 a pound. So it's a very strong entry point into the fourth quarter on price, and we're quite excited about the fourth quarter potential, given that the current quarter is seasonally a strong period for the metal.
TWST: If we look a little longer term, what is your outlook?
Mr. Hughes: We see a sustained cycle in the metals. Certainly, the world as a whole is looking much closer on the demand side versus the supply side. We are quite different in this particular cycle. When we came out of the late 1980s and into the early 1990s, we had a large number of big projects that were up and coming. The Escondida copper mine and the Red Dog mine in zinc, for example, provided all the supply the world needed through the course of the 1990s. As a result, metal prices were held extremely low when supply of each commodity increased. Going forward, we do not have a new generation of mine development to provide the oversupply situation that we had through the course of the 1990s, so today we are looking at an extended metal cycle.
TWST: With the industry doing so well at this point, what are they doing with the money if they're not out looking for new projects?
Mr. Hughes: Certainly there are several lazy balance sheets out there very heavy with cash, cash being a non-producing asset. But what we have seen through the course of this year is the consolidation trend, whether it is Xstrata with Falconbridge or CVRD (RIO) with Inco (N). That trend will continue when the opportunities present themselves. In Canada, we've lost quite a number of the large cap mining companies to international mining houses recently. We are not expecting that the large-scale mining houses worldwide - BHP Billiton (BBL), Anglo American (AAUK), Rio Tinto (RTP), or even Xstrata - will be acquiring small to intermediate sized companies. Generally, we would expect to perhaps see mergers similar to the recent EuroZinc (EZM)/Lundin Mining (LUN.TO) get-together, with more geographically-related as opposed to synergy-related companies getting together. But we don't anticipate a mass consolidation of the intermediate and the junior producers worldwide.
TWST: Why not?
Mr. Hughes: Acquisitions should provide a material impact to justify the acquisition. Excluding Alcan and Teck Cominco (TCK), we really don't have large cap stocks that are available to be acquired. Currently, Alcan is the rumored next potential candidate to be acquired.
TWST: Have we seen much in the way of dividend increases with these cash flow improvements that the industry has experienced?
Mr. Hughes: Yes, we have, in both steels and on the metal side. In fact, it is interesting to note that Teck Cominco, one of our highest dividend-yielding stocks, is providing a dividend yield of about 3%. That is not bad for a mining company, particularly by historical levels. At present, the majority of base metals companies provide a dividend yield of about 1%. Another exception is Aber Diamond Corporation (ABER), which is offering a 3.1% yield. So we do have several that have increased their dividend, and we would expect that to be a continuing trend, in addition to active share buyback programs.
TWST: Given your positive outlook, what should investors be looking at?
Mr. Hughes: Right now, we're looking at stocks that have participated on the downside, as the base metals as an asset class moved out of favor beginning about three months ago. Specifically, we're looking at quality names at lower prices. In the larger caps, Teck Cominco and Alcan remain our two top picks and we think they will again come back into the cross-hairs of the majority of investors as pricing of the base metals commodities moves up through the fourth quarter. First Quantum (FM.TO) has a pure play on copper, and we recommend buying that stock right now. In addition, HudBay Minerals (HBM.TO), which is a fully integrated copper and zinc producer, provides material upside to our target pricing. So there are several stocks that we do like.
On the steel front, IPSCO (IPS) remains our steel company of choice. We like the plate market and tubular market through 2007, and those are the two principal markets in which IPSCO participates. The majority of our Buy-recommended stocks provide a 30%-35% rate of return for our one-year target prices.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 108-page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
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