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A TD Securities analyst says the overall outlook for base metals is positive and China's copper demand is quite steady.
Further, he adds that economic recovery in the U.S. will add incrementally to demand. Surprisingly, China's latest industrial production data add to the positivity and ease the concerns of a looming debt scenario in Europe and the U.S.
According to a recent report by Fitch Ratings, base metals producers are likely to record higher earnings and cash flows in 2011 compared to 2010, driven by improved prices. The rating outlook for the sector is stable on the expectations of metal producers remaining disciplined and retaining their financial profile through the recovery. Furthermore, Fitch foresees the recovery to stretch into 2012.
These eight stocks have upside potential of 9% to 41%, according to a Bloomberg consensus. On average, these stocks have 66% buy ratings, 28% hold ratings and negligible sell ratings.
The stocks are stacked based on upside, great to greatest.
8. Kaiser Aluminum is a specialty aluminum products manufacturing company that operates through one reporting segment: fabricated products. Its other business units include secondary aluminum, hedging and corporate.
The company is scheduled to release its second-quarter earnings on Wednesday after market hours. According to a Bloomberg consensus, KALU is likely to report sales of $339 million for the second quarter, a 20% increase from $282.4 million in the year-ago quarter. EBITDA for the quarter is pegged at $26.85 million as compared to $10.60 million in the same quarter a year ago. Earnings per share are forecast at 53 cents.
The company recently announced a quarterly cash dividend payment of 24 cents per share on its outstanding common stock, payable Aug. 15, 2011. In a significant development, Kaiser disclosed signing a long-term agreement in principle with Airbus to supply aluminum plate and sheet for use in the production of commercial aircraft. The agreement will begin on the completion of the existing supply agreement.
Meanwhile, with an investment of almost $11 million by the year-end, Kaiser has announced the expansion of its Kaiser Alexco hard alloy aerospace extrusion facility in Arizona to meet growing demand.
Of the four analysts covering the stock, 25% recommend a buy and the rest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 9.3% to $61.00 in the upcoming 12 months.
7. Southern Copper, an integrated copper producer and subsidiary of Mexican miner Grupo Mexico, also engages in the production of molybdenum, zinc and silver. The company has exploration, mining, smelting, and refining activities through facilities located in Peru, Mexico and Chile.
SCCO conducts its business through three segments: Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations.
According to a Bloomberg consensus, SCCO is expected to report sales of $1.78 billion for the second quarter of 2011, up 52% from $1.17 billion recorded in the year-ago quarter. Net income for the quarter is seen increasing to $605 million or 74 cents per share, compared to $313.4 million or 37 cents per share in the second quarter of 2010. Operating profit is likely to soar by 88% to $1.02 billion. Dividend per share could increase to 57 cents from 45 cents in the comparable quarter a year ago.
Goldman Sachs has resumed its coverage on Southern Copper with a neutral rating and it is bullish on the copper price cycle. Further, the investment banking and securities firm also believes that short-term overhangs offset the discounted valuation to historical multiples, primarily regulatory framework for the mining sector in Peru and the execution of Tia Maria project.
Moreover, Southern Copper is creating value in excess of its cost of capital, as indicated by a positive EVA momentum of 10.5%.
Of the 17 analysts covering the stock, 41% recommend a buy and 53% suggest a hold. Analysts polled by Bloomberg expect the stock to gain an average 10.5% to $39.43 over the next 12 months.
6. Freeport-McMoRan Copper & Gold mines copper, gold and molybdenum and has a dynamic portfolio of assets, including the Grasberg minerals district in Indonesia, mining operations in North and South America, and the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC). Overall, FCS operates seven copper mines in North America and four copper mines in South America.
The company recently reported its second quarter and first half 2011 financial results. Second-quarter net income stood at $1.4 billion or $1.43 per share, compared to $649 million or 70 cents per share in the year-ago quarter. Consolidated sales for the quarter came in at $5.8 billion vs. $3.9 billion in the second quarter of 2010. For the first half of 2011, net income and sales were up 93.3% and 39.2%, respectively.
For full year 2011, Freeport estimates consolidated sales from mines at 3.9 billion pounds of copper, 1.6 million ounces of gold and 77 million pounds of molybdenum. Full year capital expenditure is forecast at $2.6 billion, including $1.4 billion for major projects and $1.2 billion for sustaining capital.
With a dividend yield of 1.67%, the company declared a cash dividend of 25 cents per share payable Aug. 1, 2011. In addition to a regular dividend, the company paid a supplemental common stock dividend of 50 cents per share.
Of the 20 analysts covering the stock, 75% recommend a buy and 20% rate a hold. A Bloomberg poll expects the stock to gain an average 21.5% to $67.40 over the next 12 months.
5. Alcoa engages in mining, refining, smelting, fabricating, recycling, and the production and management of aluminum, fabricated aluminum, and alumina combined. The company operates in 31 countries and has investments and operating activities in Australia, Brazil, China, Guinea, Iceland, Russia, and Saudi Arabia.
Globally, the company's products find application in industries ranging from aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas and defense.
Net income for the second quarter 2011 was $322 million or 28 cents per share, compared to $136 million or 13 cents per share in the year-ago quarter. Increased demand escalated sales by 27% to $6.59 billion, topping analysts' estimates.
Analysts believe that new products and solutions have led to significant earnings growth. Alcoa recorded reduced days working capital of 37 as compared to 43 in the second quarter of 2010.
The company's board of directors recently declared a quarterly common stock dividend of 3 cents per share payable August 25, 2011. Besides, it also declared a quarterly dividend of 93.75 cents per share on its $3.75 cumulative preferred stock payable October 1, 2011. Looking ahead, Alcoa has reaffirmed 12% growth in global aluminum demand for 2011.
Of the 18 analysts covering the stock, 56% recommend a buy and 28% suggest a hold. Analysts polled by Bloomberg expect the stock to gain an average 24.8% to $19.54 in the upcoming 12 months.
4. Noranda Aluminum Holding is a vertically integrated producer of aluminum products and rolled aluminum coils in North America. The company operates through two segments: metals, or the upstream business; and rolled products, or the downstream business. The upstream business consists of an aluminum smelter near New Madrid and supporting operations at its vertically integrated bauxite mine and alumina refinery.
The company is scheduled to release its second-quarter earnings on July 27, before the market opens. As per a Bloomberg consensus, Noranda is likely to report sales of $370.5 million for the second quarter of 2011, increasing 11% from $334.9 million recorded in the year-ago quarter. Net income for the quarter is seen increasing to $28.5 million, or 41 cents per share, compared to $17.6 million, or 35 cents per share, in the second quarter of 2010. EBITDA for the quarter is seen doubling to $71.75 million from $25.93 million in the comparable quarter last year.
Early June, S&P upgraded its long-term corporate credit rating on Noranda Aluminum Holding to "B+" from "B". The rating agency has assigned a stable outlook, as it expects the company's operating performance to improve modestly over the next 12 months, consequent to the gradual recovery in end-market demand.
Of the 7 analysts covering the stock, 57% recommend a buy and 29% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 25.7% to $17.13 in the upcoming 12 months.
3. Vale, the Brazilian metals and mining giant, produces iron ore and iron ore pellets, manganese ore, ferroalloys, copper, thermal and coking coal, phosphates, potash, cobalt, kaolin, and platinum group metals, or PGMs. Besides investing in the energy and steel business, Vale operates large logistics systems in Brazil that are integrated with its mining operations.
The company is scheduled to release its second-quarter earnings on July 29. As per consensus estimates polled by Bloomberg, Vale is expected to report net income of $6.99 billion, or $1.40 per share, compared to $3.7 billion, or 71 cents per share, in the year-ago quarter. Sales are seen surging 48% to $15.29 billion from the same period of 2010. EBITDA is forecast at $9.98 billion versus $5.67 billion recorded in the year-ago quarter.
Recently, the company announced that it will set up a joint venture port with its fertilizer unit Vale Fertilizantes near Santos in Sao Paulo state. The venture would position the mining giant to meet the demand of Brazil's growing agribusiness sector and pave way for expansion in the upcoming years. Vale has identified fertilizers as one of its strategic growth areas. Last week, the company announced plans to invest $2.2 billion to expand activities at its Port of Santos, subject to its board's approval.
Of the 23 analysts covering the stock, 87% recommend a buy and the remaining rate a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 27.1% to $42.61 in the upcoming 12 months.
2. Teck Resources engages in the business of exploring, developing and producing natural resources. The company conducts its activities in four business units: copper, coal, zinc and energy. Teck's principal products are copper, steelmaking coal and zinc. Meanwhile, lead, molybdenum, silver and various specialty and other metals, chemicals and fertilizers are byproducts of its operations.
Teck Resources is scheduled to release its second-quarter earnings on July 28, after the markets close. As per a Bloomberg consensus, the company is expected to report sales of $2.88 billion, increasing 40% from $2.05 billion recorded in the year-ago quarter. Net income is estimated at $652.54 million, or $1.08 per share, compared to $365.9 million, or 62 cents per share, in the comparable quarter last year.
EBITDA is forecast to grow by 53% to $1.41 billion, while operating profit is seen increasing by 77% to $1.22 billion. Additionally, cash flow per share is seen expanding to $1.39 from 95 cents per share in second-quarter 2010.
Recently, the company priced its earlier-announced offering of senior unsecured notes and will issue $2 billion in aggregate principal amount of notes. Teck expects to receive net proceeds of almost $1.98 billion from the offering, after deducting underwriting fees and estimated offering expenses. It intends to use these funds for general corporate purposes including estimated capital spending for project development in its coal, copper and energy businesses. Besides, BMO Capital recently raised the stock's rating to outperform from market perform as copper prices have surged to new highs and are likely to spike further.
Of the 21 analysts covering the stock, 86% recommend a buy and 10% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 35.2% to $71.98 over the upcoming 12 months.
1. Rio Tinto engages in mineral exploration, development, production and processing, and operates in product groups such as aluminum, copper, diamonds and minerals, energy, and iron ore. The company's businesses include open pit and underground mines, mills, refineries and smelters, as well as a number of research and service facilities.
Recently, Rio Tinto reported its second-quarter 2011 results. Global iron ore production during the quarter was up 12% to 49 million tons from the second quarter of 2010. Bauxite production increased 11% from the year-ago quarter. Mid-June this year, Rio Tinto hiked its interest in Riversdale to 99.76%. Meanwhile, in the first half of 2011, the company raised its stake in Ivanhoe Mines to 46.5% from 40.5%. Also, Rio participated in Ivanhoe's rights offering for a total consideration of $1.25 billion.
Looking ahead, Rio Tinto remains cautious about the short-term outlook for aluminum although demand could rise in the long term, thereby doubling its profit margin. The company targets to boost its EBITDA margin by focusing on a series of growth projects that include production, expansion and modernization. It would mainly increase its capacity in high-return areas and pursue Canadian modernization projects that are able to leverage clean and low-cost hydropower generation.
All the 5 analysts covering the stock recommend a buy on it. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 41.4% to $101.70 over the next 12 months.
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