Quadra FNX Mining Ltd.'s 2011 production of copper will fall far short of expectations, a major stumble for a company formed last spring to capitalize on the high price of the hot commodity.
Investors drove stock of Quadra FNX down 11 per cent Monday, dissolving gains made in the past two months as the price of copper inexorably climbed to record heights.
Quadra, which reported its 2010 results and 2011 forecast on Monday morning, said it expects to produce about 240 million pounds of copper, just 9 per cent more than the 220 million pounds produced in 2010.
More significantly, the outlook is well below the 300 million pounds for 2011 predicted by the company last spring.
The outlook is "negative" news for the company, according to analyst David Cotterell of BMO Nesbitt Burns, though he told his clients that the stock "remains attractive" as a value play on the copper industry. Analyst Greg Barnes of TD Securities said Quadra's outlook is notably lower than his "cautious" forecast of 280 million pounds of copper.
The company, Mr. Barnes said in a Monday report to clients, "appears to continue to be accident prone."
Mr. Barnes pointed to heavy rain at a new mine, called Carlota, in Arizona. Seventy-six millimetres of rain fell in 24 hours in December and "had some impact on plant performance," Quadra said. Also, at the Franke mine in Chile, a new piece of equipment arrived with a "significant structural design defect," the company said, which it is working to address.
Mr. Barnes called the Quadra news "yet another series of production challenges and weaker-than-hoped-for production guidance."
The company was formed in March by the merger of Canadian copper rivals Quadra Mining Ltd. and FNX Mining Co. Inc. Copper has since surged past $4 (U.S.) a pound, compared to an average price in 2010 of $3.42.
Quadra chief executive officer Paul Blythe said the company begins its first full year of consolidated operations with a "strong cash position." It recently sold its large stake in Gold Wheaton Gold Corp. to Franco-Nevada for $262-million.
Full financial results for Quadra's fourth quarter and all of 2010 will be issued Feb. 28.
Analysts said investors will closely watch news from Quadra's proposed Sierra Gorda project in Chile, for which the company plans to complete an "internal financing study" by the end of March.
Located in a significant copper belt, the property is 140 kilometres by road and rail from the port of Antofagasta. Sierra Gorda could be a major mine, with production of about 325 million pounds of copper annually, well more than Quadra FNX's current output. Because of Sierra Gorda's scale, the company is looking for partners, which has been a challenge. A tentative deal with China's State Grid International Development Ltd. fell through last year.
"Partnership discussions are ongoing and progressing well," Mr. Blythe said in a statement on Monday.