The Whistling of Copper Kettles

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you train your ear, you can hear the sounds from copper kettles whistling their tunes to investors concerning top copper companies and the prevailing winds for the commodity this year.

A report at Kitco News (Allen Sykora - December 27, 2012 - kitco.com) relates that the expectation is that there will be a modest surplus of copper on the market this year. However, analysts expect demand to increase somewhat as well. On top of this, the Kitco article states that inventories of copper are historically low.

What does this all mean for investors considering copper companies? The consensus is that copper prices will mainly hold in 2013, with modest price fluctuations in either direction.  A Bloomberg report on December 11, 2012 (bloomberg.com - Maria Kolesnikova) indicated that Bank of America Corporation believes that copper, gold, silver, platinum and palladium will outperform other commodities in 2013 due to easing by the U.S. Federal Reserve and supply constraints.

Therefore, some sort of price stability seems to be the tea that's brewing in copper kettles for the year. What does this portend for investors sipping and studying major copper companies? Are they positioned for greater growth?

Southern Copper (NYSE: SCCO) is one of the largest integrated copper producers in the world. The company recently reported their Year 2012 financial results. Their Net Sales were $6.7 billion. This was 2.2 percent lower than their Year 2011 historical record of $6.82 billion. They achieved their Net Sales by an increase in sales volumes for copper (+7.1 percent), silver (+14.6 percent) and zinc (+3 percent). Of note is that they experienced only a small drop in sales despite the price for copper decreasing by 10 percent.

Investors should consider pricing as well as expenses concerning copper producers. Southern Copper's Operating Cash Cost per pound of copper before by-product credits was $1.796 per pound in Year 2012. This is in comparison to $1.759 per pound in Year 2011, an increase of 2.1 percent. The increase was primarily due to increases in costs for fuel and power.

Their Operating Cash Cost per pound, net of by-product credits was $0.713 in Year 2012, compared to $0.517 in Year 2011. This was mainly due to lower prices for the company's major by-products. Therefore, analysts' outlook for copper prices is something investors should consider for 2013 and beyond.

However, Southern Copper's copper mine production and capital expenditures are positives for investors to look at when performing due diligence. The company's copper mine production increased by 50,188 tons or 8.5 percent in Year 2012, compared with Year 2011. This was due to better ore grades and recoveries at all of their mines. Southern Copper had total copper production of 651,801 tons in Year 2012. This is 11,801 tons higher than their 2012 goal of 640,000 tons.

I like the company's dedication this year to their investment program. Their goal is to increase copper production capacity by approximately 84 percent - from 640,000 tons to 1,175,000 tons by the year 2017. Southern Copper's Capital Expenditures were $1,051.9 million for Year 2012 - a record. This was 71.6 percent higher than their record set in Year 2011. This commitment to increasing copper production capacity could provide better returns for investors in the coming years.

Freeport-McMoRan Copper & Gold (NYSE: FCX) is the world's largest publicly traded copper company, mining reserves of copper, gold and molybdenum. In January 2013, the Company reported their Fourth-Quarter and Year Ended December 31, 2012 results. Net income attributable to common stock for the Year 2012 was $3.0 billion, $3.19 per share. This is in comparison to $4.6 billion, $4.78 per share, for the Year 2011.

Consolidated sales for the Year 2012 totaled 3.65 billion pounds of copper, 1.0 million ounces of gold and 83 million pounds of molybdenum. This is in comparison to 3.70 billion pounds of copper, 1.4 million ounces of gold and 79 million pounds of molybdenum for the year 2011.

Consolidated unit net cash costs (net of by-product credits) averaged $1.54 per pound of copper for fourth-quarter 2012, in comparison to $1.57 per pound for fourth-quarter 2011. The company is estimating, based on various factors, that their consolidated unit net cash costs (net of by-product credits) will average $1.35 per pound of copper for the year 2013. Mr. James R. Moffett, Chairman of the Board, and Mr. Richard C. Adkerson, President and CEO said, "We are focused on executing our strategy of developing long-term resources in a cost effective and financially attractive manner to generate long-term value for shareholders." Getting consolidated unit net cash costs down is one way to do it and this will contribute to value for investors if the company's successful in this strategy.

I also like Freeport-McMoRan's focus; their Capital Expenditures were $976 million for fourth-quarter 2012 and $3.5 billion for the year 2012. This compares to $785 million for fourth-quarter 2011 and $2.5 billion for the year 2011. They expect Capital Expenditures to approximate $4.6 billion for the year 2013 (excluding amounts for pending acquisitions). This includes $2.8 billion for major projects and $1.8 billion for sustaining capital. For investors, the positive here is the company's plan to grow their copper production from 3.66 billion pounds in 2012 to more than 5 billion pounds per year in 2015.


MichaelONTARIO has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America and Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus