|
|
|
|
July 1, 2011 Dear Friend,
We estimated the Collahuasi mine
expansion falls in the midpoint of the June 23rd guidance with 325,000 mtpd
of ore processed, 0.9 mmt of copper output and a $3..5 billion cap ex outlay
on a 100% basis in 2017. We made earnings estimate revisions accordingly.
We raised our price target for Xstrata to $35 from $33, where we cut our output estimates for Alumbrera and Tampakan, kept four other copper development projects "off the chart" until they have board approval and shaved our terminal growth estimates 0.3% to keep the gains from being even larger. We model near $50 billion of cash accumulation by 2020, suggesting either dividends or huge capital outlays or acquisitions or all of the above. We cut our price target of the equal 44% partner in Collahuasi, Anglo American, to $35.50 from $37.00 per ADS. In our June 6th world iron ore analysis after our June 1-3 visit to iron ore mining companies in Western Australia, we estimated a 100 mmt annual iron ore capacity surplus assuming a 4% CAGR for global steel output from 2010 and 2011 records with no future recessions. While we maintain a post-2014 estimate of an $80 per metric tonne global iron ore price, we have begun to think precisely about purity, quality, size and freight differentials. Of course, freight differentials will vary with diesel fuel prices and shipping rates. We estimate a $12 per tonne freight discount or absorption on Brazilian ores to Asia and a $7 per tonne freight discount or absorption on Kumba South African ores to Asia, which accounted for our price target cut to Anglo American. While we believe purity, quality and sizing differentials for iron ore will be large, we believe most producers will incur large costs to upgrade, remedy and improve their product. For example, pelletizing or magnetic separations to magnetites permit most low grade ores to be robustly acceptable. Thus, those quality penalties will be born by iron ore suppliers in the costs of goods sold line as added costs and not as discounted revenues. Faithfully,
John C. Tumazos, CFA
|
Copyright © 2008 John Tumazos Very Independent Research,
LLC
|
