Weekly Metals And Mining Notes: Alcoa, Newmont And ArcelorMittal

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Metals and mining stocks had an eventful week with Alcoa announcing the signing of a long term contract with Boeing, Newmont Mining announcing the divestment of its stake in a joint venture and ArcelorMittal showcasing its range of shipbuilding steels at a trade fair. In addition, gold prices have been impacted over the course of this month due to expectations of an interest rate hike by the Fed. Here are some of the major events of the week pertaining to companies that Trefis covers in the metals and mining space.

Alcoa

Alcoa (NYSE:AA) has announced the signing of a long term contract worth $1 billion to supply aluminum sheet and plate products to Boeing. The agreement makes Alcoa the sole supplier to Boeing for wing skins on all of its metallic structure aircraft. Alcoa plate products, which are used in applications such as wing ribs, wing skins or other structural parts of the aircraft, will also be used on every Boeing platform. [1]

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The deal is the latest in a series of developments for Alcoa in the aerospace sector. Alcoa’s aerospace revenues of $4 billion in 2013 accounted for around 17% of its total revenues for the year. ((Alcoa’s 2013 10-K, SEC)) With several recent developments in the aerospace segment, its share of the company’s revenue is set to grow. The aerospace segment is driving Alcoa’s portfolio transformation towards value-added products, as it looks to reduce its dependence on its commodity businesses. The percentage contribution of the Global Rolled Products and the Engineered Products and Solutions segments, which represent Alcoa’s value-added businesses, to the company’s total revenues has steadily increased. This figure stood at 52.1%, 54.4%, 55.7% and 58% at the end of 2011, 2012, 2013 and first half of 2014, respectively. [2] In calculating these figures, we have only considered third-party sales.

We have a $15 price estimate for Alcoa, which is around 9% below the market price. We estimate revenues of $24.4 billion in 2014 for the company and an EPS of $0.46, as against a consensus estimate of $0.61.

 

Newmont

Newmont Mining (NYSE:NEM) has announced that it has entered into a binding sale and purchase agreement with Fresnillo plc to divest its 44% stake in the Penmont joint venture in Mexico for $477 million, including cash proceeds of $450 million. [3] Newmont holds a 44% interest in the Penmont joint venture and related gold properties (La Herradura, Soledad-Dipolos and Noche Buena), with Fresnillo holding the remaining 56% interest. This is a part of the company’s efforts to divest non-core assets in a subdued gold pricing environment. Newmont has divested $1.3 billion worth of non-core assets since last year. ((Newmont Signs Agreement to Sell Stake in Penmont Joint Venture in Mexico, Newmont News Release))

We have a $25 price estimate for Newmont, which is around 1% below the market price. We estimate revenues of around $7.6 billion for the company in 2014 and an EPS of $0.85, as against a consensus estimate of $0.82.

 

ArcelorMittal

ArcelorMittal (NYSE:MT) showcased its latest steel solutions for the shipbuilding industry at the SMM trade fair, an international maritime industry trade fair, held in Hamburg, Germany. The company produces heavy plates and hot rolled sheets used in all structural parts of the vessel such as hulls and decks in all types of ships. The company also showcased alloyed plates for specific applications such as oil and gas, nuclear and cryogenic transport as well as innovative and aesthetic metallic and pre-painted flat steels for ship cabins and interiors. The company runs production facilities to provide shipbuilding steels throughout Europe. [4]
We have a $14 price estimate for ArcelorMittal, which is in line with the market price. We estimate revenues of around $83 billion and an EPS of $0.33 for ArcelorMittal in 2014, as against a consensus estimate of $0.46.

 

Gold Prices

Gold prices have fallen to their three-month lows in September. ((Gold Slides to Three-Month Low on Easing Ukrainian Tension, Bloomberg)) This is mainly due to investor expectations of a hike in interest rates by the Federal Reserve. Recently released Manufacturing Purchasing Managers Index (PMI) data in the U.S. indicates improvements in the U.S. economy. The manufacturing PMI measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. The manufacturing PMI has consistently registered values of over 50 for all months in 2014. ((U.S. Manufacturing PMI, Trading Economics)) As per PMI data released by Markit Economics, manufacturing activity in August was the busiest since April 2010. [5] An improvement in conditions in the manufacturing sector points to a general improvement in macroeconomic conditions in the U.S. This has led to the strengthening of the U.S. dollar and has fueled expectations of an increase in interest rates.

The London PM Fix gold price stood at $1,286.50 per ounce at the beginning of the month, with prices closing at $1,241.50 per ounce at the close of trading on September 11. [6] This has led to declines in stock prices of major gold producers such as Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM), which have seen their stocks fall around 6% and 4% respectively so far this month.

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Notes:
  1. Alcoa Signs Multiyear Supply Contract with Boeing Valued at More Than $1 Billion, Alcoa News Release []
  2. Alcoa’s 2013 10-K, SEC []
  3. Newmont Signs Agreement to Sell Stake in Penmont Joint Venture in Mexico, Newmont News Release []
  4. ArcelorMittal showcases latest steel solutions for shipbuilding at SMM trade fair, ArcelorMittal Press Release []
  5. Upbeat Economic Reports Signal Sustained Improvement, Wall Street Journal []
  6. Historical Gold Price Charts, Kitco []