Weekly Metals And Mining Notes: Alcoa, Rio Tinto And Newmont Mining

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Metals and mining stocks had an eventful week with Alcoa announcing the launch of an aluminum-based wheel for trucks in Europe, Rio Tinto announcing the launch of three-dimensional mapping technology in its mining operations and Newmont Mining announcing the receipt of an export permit in Indonesia that will enable the resumption of the company’s mineral exports from the country. 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 that it will launch its lightest heavy-duty truck wheel in Europe in 2015. [1] The company is now seeking fleet partners for the European launch of its Ultra ONE wheel. The wheel is Alcoa’s lightest forged aluminum wheel. It was launched in the U.S. in March this year and been approved by all major U.S. truck and trailer manufacturers. Aluminum offers the advantage of significant weight savings over the same components manufactured from steel. For example, Alcoa’s wheels are made from one piece of forged aluminum, making them lighter and five times stronger than steel wheels, increasing payload and fuel efficiency. [1] These components will help automobile manufacturers meet increasingly stringent norms for fuel-efficiency and emissions.

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Alcoa makes a range of automotive components including fasteners, extruded drive shafts, wheels, brazing sheets used in heating, ventilation and air conditioning (HVAC) systems and aluminum used in engine blocks. [2] The emphasis on value-added products for the automotive sector is a part of the company’s broader shift 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. [3] In calculating these figures, we have only considered third-party sales.

We have a $15 price estimate for Alcoa, which is around 2% 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.

Rio Tinto

Rio Tinto (NYSE:RIO) announced that it is launching three-dimensional mapping technology to reduce costs and enhance the efficiency of its mining operations. [4] The three-dimensional mapping technology will enable the company to precisely identify the size, location and quality of ore in real time by retrieving data from automated trucks and drills operating in its mines. The software creates three-dimensional images of mine pit activities in real time, something that could not be done previously. ((Rio Tinto accelerates productivity drive with world-first technology to enhance mineral recovery, Rio Tinto Media Release)) The technology leads to greater ore recovery through sharper boundary identification, more accurate drill blasting, reduced explosives, improved waste classification and enhanced dig rates. This improves the efficiency of mining activity by ensuring it is tightly focused on removing high value ore, significantly reducing both waste and operational costs. Rio Tinto has deployed its three-dimensional technology at its West Angelas iron ore mine in Western Australia, and the company is also conducting trials at its copper, energy and diamond mining operations. ((Rio Tinto accelerates productivity drive with world-first technology to enhance mineral recovery, Rio Tinto Media Release))

Controlling costs and boosting efficiency has become vital for iron ore majors such as Rio Tinto, as weak iron ore prices are putting pressure on these companies’ margins. Iron ore prices stood at $92.61 per dry metric ton (dmt) at the end of last month, around 32% lower than at the corresponding point of time last year. [5] This is primarily because of weak demand and an oversupply situation created as a result of expansion in iron ore production by major iron ore companies, despite the weakness in demand. [6] Three-dimensional mapping is the latest in a series of technological initiatives by Rio Tinto to boost the productivity of its mining operations.

We have a $54 price estimate for Rio Tinto, which is around 6% above the market price. We estimate revenues of around $49 billion and an EPS of $5.61 for Rio Tinto in 2014, as against a consensus estimate of $5.82.

Newmont Mining

Newmont Mining (NYSE:NEM) announced that it has received an export permit from the Indonesian government to resume exports of copper concentrate. The company expects the resumption of exports this week. [7] The company halted mineral exports from Indonesia in January pending negotiations with the government over new regulations governing mineral exports, and halted the production and processing of copper concentrate in June as its storage facilities were filled to capacity. Newmont announced the signing of a Memorandum of Understanding (MoU) with the Indonesian government earlier on in the month, bringing to end an eight-month standoff over new regulations governing mineral exports from the country. The company started ramping up its operations in Indonesia post the signing of the MoU earlier on in the month.

We have a $25 price estimate for Newmont, which is around 6% higher than 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.

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Notes:
  1. Alcoa to Roll out Lightest Heavy-Duty Truck Wheel in Europe, Offering Increased Fuel Efficiency, Payload, Alcoa News Release [] []
  2. Alcoa’s Automotive Offerings, Alcoa Website []
  3. Alcoa’s 2013 10-K, SEC []
  4. Rio Tinto accelerates productivity drive with world-first technology to enhance mineral recovery, Rio Tinto Media Release []
  5. Iron Ore Spot Prices, Y Charts []
  6. BHP, Rio Gamble With A Stacked Iron Ore Deck, Mineweb []
  7. PTNNT Receives Export Permit, Shipments Expected to Resume This Week, Newmont Mining News Release []