Three Australian Companies to Watch This Earnings Season

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It is interesting to note that where earnings season is coming to an end for the US-based companies, it is actually kicking off for the Australian companies. I hope this gives investors some time off from the Googles and Apples of equity world and spare some time to analyze ADRs with massive potential. I have extracted three Australian Resource companies that are due to report this week:

Paladin Energy (NASDAQOTH: PALAF)

Paladin Energy Limited is an Australian-based mining company that primarily explores for uranium in Australia and Southern Africa.

The Street forecasts a H1-13 loss of US $44.7 million, which is a slight improvement from the June half 2012 loss of US $52.6 million. A key variable we are looking for in the interim result is the cost associated with the draw down in inventory, as production in the December quarter of 2.2 Mlb (million pounds) was ahead of sales of 2.8Mlb. The company reiterated FY13 guidance in the December quarter result for 8-8.5Mlb, and considering production of 4.12Mlb has already been achieved in the December half year, it is expected that the guidance will be refined to the upper end of the range. Despite this, the company is struggling for profitability in the current price environment. The company is targeting costs outs of US$60-80 million over the next two years, so the Street looks to see more discussion and progress on the cost out initiatives to support a move towards profitability. The company is expected to report on Feb. 14

Perseus Mining (NASDAQOTH: PMNXF)

Perseus Mining Limited is an Australian-based mineral exploration company. The Company explores for gold in West Africa and Central Asia regions.

Perseus is expected to report its FY13 interim profit result on Friday, Feb. 15. The Street expects earnings of $36.5 million (estimates in Australian dollar), broadly in-line with the previous half year result of $39 million and ahead of the Paramount mining result of $13.7 million. However, I place low confidence in this result due to the series of unplanned stoppages at the Edikan operation during the December period. These stoppages could potentially reduce the profit by $5 – 10 million. Also, the company is not expected to commence dividend payments at the interim result.

Rio Tinto (NYSE: RIO)

I am sure this name doesn’t need any introduction.

The Street forecasts an underlying profit of US $ 9.23 billion compared to US $15.55 billion in 2011, which mean a decrease of 41% y/y. For the December half year, the Street forecasts an underlying profit of US $4.08 billion, which will be the fourth consecutive half over half decline in earnings. The net debt is expected to increase to US $18.4 billion, up from US $13.9 billion at the end of the June half year 2012. Earnings in the December half year remain dominated by the iron ore division with estimated earnings of US $3.96 billion down 16% q/q (sequentially) and down 43% y/y, while contributing 97% of group underlying earnings. A breakeven position is expected for the Aluminum and Energy businesses, while estimated earnings from the copper business of US $668 million are up 20% h/h and flat y/y. RIO has flagged a non-cash impairment of $14 billion (post tax), with $10-11 billion in Aluminum ($6 billion goodwill, $3 billion Pacific Aluminum and $1-2 billion operating assets), and ~$3 billion relating to Riversdale. In addition, with the appointment of Sam Walsh to the role of CEO, the Street expects to see Sam confirm RIO’s existing strategy and RIO could see new appointments, including a new Head of Iron Ore and Head of Strategy.

Foolish Bottom-Line

Significant headline reductions in Net Operating Profit After tax (NOPAT) will be a running theme in this earnings season for the Australian-based mining companies. Not only this, heavy weights like RIO are also focusing on cost control techniques which will mean that cost out will be another common theme among these miners. 


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