October 21, 2008 / 3:23 PM / 12 years ago

Miners set for weak quarter, more gloom

TORONTO (Reuters) - Plunging commodity prices and higher costs will pull down third-quarter earnings of Canadian base metal miners, analysts say, but the recent selloff of mining stocks means the weak results may go largely unheeded by investors.

Rather, with the plunge in metal prices having accelerated in the early weeks of the fourth quarter, the market will be focused on any signals from miners as to how bad things could get through the end of the year.

“To tell you the truth, I think the market will largely ignore the third-quarter numbers,” said John Hughes, an analyst at Desjardins Securities in Toronto.

“Certainly the downdraft we’ve seen among (metal prices) is creating some concerns that the fourth quarter’s going to be a messy reporting period for the metals group.”

The plunge in metal prices — which has picked up speed in October — will weigh on results for the July-September period, particularly those of miners that produce nickel and zinc, which have seen prices hammered by the financial crisis and worries of global recession.

Canadian third-quarter mining earnings will kick off on Wednesday with diversified producer Teck Cominco TCKb.TO.

Teck, which is in the process of closing a $13 billion takeover of Fording Canadian Coal Trust, is expected to show a quarterly profit of C$1.16 a share before exceptional items, according to Reuters Estimates, a 9 percent decline from a year earlier.

Despite a substantial exposure to zinc, Teck should be helped by its metallurgical coal production, as coal prices have jumped year-on-year.


For miners more heavily exposed to zinc and nickel — which dropped 45 percent and 48 percent, respectively, in the 12 months ended September 30 — the picture is gloomier.

Quarterly per-share profit at copper and zinc miner HudBay Minerals (HBM.TO) is seen dropping by more than 60 percent to 19 Canadian cents, while rival Lundin Mining (LUN.TO) could see its year-on-year EPS fall more than 75 percent to 7 cents, according to Reuters Estimates.

Profit at base metal producers Inmet Mining IMN.TO, Sherritt International (S.TO), First Quantum Minerals (FM.TO), FNX Mining FNX.TO and Quadra Mining QUA.TO is also seen declining, but more modestly.

With shares of most of these companies down more than 50 percent so far this year, even a disappointing result may not have a noticeable impact on the stocks.

But with the commodity price selloff having become steeper in October, and copper also now much weaker year-on-year, investors will be looking for guidance as to which mines or development projects may fall victim to the weaker price environment.

Teck, HudBay and FNX have already announced mine closures, while several companies have warned they may have to put projects on hold.

Costs, as always, will also be in focus, as the gap between expenses and commodity prices will determine profitability.

“Companies can’t control the selling prices, but they can control their costs,” said David Whetham, who manages a resource fund at Scotia Cassels, adding that weak cost control could suggest problems going forward.

“But I don’t think it’s necessarily going to hurt stock prices, because they’re already off so far that expectations have to be pretty low.”

Reporting by Cameron French; editing by Rob Wilson

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