Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Stocks of major fertilizer producers Mosaic (NYSE: MOS) and Potash Corp (TSX & NYSE: POT) hit their lowest levels in almost two years on Monday, in what is considered yet another sign the commodity “supercycle” is gearing down as slower global growth cools demand.
Other soil nutrient producers, such as Intrepid Potash (NYSE: IPI), also dropped dramatically fuelled by economic concerns and what Edlain Rodriguez, an analyst at Lazard Capital Markets called an “extremely negative sentiment” in an interview with Reuters.
Shares of Potash Corp, the world’s number one producer of the fertilizer, dropped 1.7% in early afternoon trading on Monday to $36.87, touching their lowest level since August 2010, to close at $37.44. The company didn’t do much better in the Toronto exchange, closing at $38.89.
Mosaic, the world’s second biggest potash miner, also experienced a negative session, tumbling 3.1 % to close at $45.62
Resource companies worldwide have become edgy as growth in major buyers China and India slows down, easing global demand for commodities, The Globe and Mail reports:
The mining industry has enjoyed an extended stretch of high prices, but this so-called supercycle has escalated capital costs and prompted some governments to raise royalty rates in an effort to cash in on the boom. Now that supplies are more closely aligned with demand and costs remain hot, megaprojects may be losing their allure.
In March, India – the number one importer of potash at 6 million tonnes- announced it was cutting state subsidies for potash and phosphate-based fertilizer by a fifth.
And last month, comments by BHP Billiton’s chief executive officer, Marius Kloppers, didn’t inject optimism in the industry either. He suggested the company could postpone major spending plans and delay the construction of Jansen potash mine in Saskatchewan, Canada.
In a note issued to investors on Monday, analysts at National Bank dropped their target price on shares of Potash Corp from $42.00 to $35.50. The firm, reports Zolmax News, currently has an “outperform” rating on the stock:
The analysts wrote, “Improving weather forecasts for key U.S. corn/wheat-growing regions, and for many parts of the Black Sea area, have seen corn/wheat prices under pressure of late. Coupled with the “risk-off” trade that has hurt many commodities, we now estimate grains are ~2% below the mid-point of the current price cycle (Ex. 1). This latest price drop is like that of December 2011, when fertilizer prices/demand were significantly impaired.”
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