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.
Despite a better-than-expected quarterly profit by Teck, investors worried about the Canadian-based diversified miner’s hefty capital commitments on the Fort Hills oil sands project and a possible writedown of its coal assets, Haywood Securities analyst Kerry Smith said.
In 2015 Teck’s share of cash spending on Fort Hills, which is owned by two other partners, is around C$850 million ($653.59 million).
Commodity prices, including copper, coal and gold have continued to slide in recent weeks. Copper fell to new two-week lows on Thursday of $5,267.50 a tonne, or $2.39 a pound. Gold hit a five-year low of $1,088.05 an ounce on Monday.
Freeport’s stock fell as much as 11.6 percent to $13.30 in New York. It was last at $13.60, off nearly 10 percent. Teck tumbled to a six-year low of C$9.36. It was last at C$9.77, down 6 percent.
$1 = 1.3005 Canadian dollars Reporting by Nicole Mordant and Susan Taylor; Editing by Richard Chang