Teck, Freeport shares slide on debt, metals price worries
By Nicole Mordant and Susan Taylor
VANCOUVER/TORONTO, July 23 (Reuters) - Shares of global miners Freeport-McMoRan Inc and Teck Resources Ltd took a pounding on Thursday as investors worried about balance sheets stretched by debt and capital commitments as metal prices continued to tumble.
Both companies' stock fell by more than 10 percent even as they produced strong operating results for the second quarter, setting the stage for a rough reporting season for miners already hit by a four-year downturn.
Investors must carefully scrutinize mining stocks and their debt loads, said Darren Lekkerkerker, co-manager of the Fidelity Global Natural Resources Fund, which has only about 4 percent of its investments in mining.
"You need to really be careful about owning those stocks, because as the commodity price comes down, when they have a lot of leverage, cash flow is really going to come down too," said Lekkerkerker.
"No one wants to own stocks where they may need to do an equity issue in order to shore up the balance sheet."
U.S.-based diversified miner and energy producer Freeport said its debt rose to $20.9 billion by the end of June, from $20.3 billion three months earlier. That exceeded its market value of $15.7 billion.
The slide in its stock is due to "the lack of any plan to really de-lever the balance sheet in any significant way," said Garrett Nelson, analyst at BB&T Capital Markets.
"The companies that are more highly levered have underperformed and should continue to underperform," he said. Continued...