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.
Quadra FNX Mining announced second quarter 2011 profits up 75% at $63.8 million and revenues up 76% to $298 million on Wednesday, but was not spared the stock market mayhem and was trading down over 2% by midday on Wednesday bringing its losses for the month to 18%.
The results of the Vancouver-based copper miner with operations in Ontario, the US and Chile were only marred by a jump in cash costs to $2.33 per pound of copper, but after raising $500 million during the quarter now sits on a healthy $1 billion in cash.
Quadra FNX was trading at $12.15, down 2.1% in Toronto at midday on Wednesday on usual volumes. The company is worth $2.3 billion on the TSX and has experienced a bad month of trading, losing 18% since July 11, 2011.
SECOND QUARTER AND RECENT HIGHLIGHTS:
- Total revenues increased 76% to $298 million in the quarter compared to $169 million in the same quarter of 2010.
- EBITDA increased 79% to $109 million compared to $62 million in the second quarter of 2010 (“Q2 2010”).
- Total production was 55 million pounds of copper and 27 thousand ounces of total precious metals (TPMs). Cash costs were $2.33 per pound of copper. Sales lagged production by 2 million pounds.
- Earnings increased 75% to $64 million or $0.33 per share (basic) compared to $37 million in Q2 2010 or $0.26 per share. The increased earnings in Q2 2011 were primarily driven by a $31.9 million increase in operating profit, due to higher average copper prices, the inclusion of the Sudbury operations, partially offset by lower operating income at Robinson and Franke.
- The Company completed the private placement of $500 million aggregate principal amount of 7.75% senior notes and ended the quarter with $1.03 billion of cash.
- The Company entered into a definitive agreement to form a Joint Venture (“JV”) with Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation (collectively “Sumitomo”) to develop the Sierra Gorda project in Chile subject only to customary regulatory approvals. The Company will retain a 55% interest in the JV.
- The National Instrument 43-101 (NI 43-101) compliant Technical Reports were filed in support of the Sierra Gorda Feasibility Study and the Inferred Mineral Resource for the Victoria project in Sudbury, Ontario
- As a subsequent event, the Company received approval of the Environmental Impact Assessment (“EIA”), the master environmental permit, for Sierra Gorda.
- Adjusted earnings for Q2 2011 totalled $42.8 million or $0.22 per share (basic) compared to $22.9 million or $0.16 per share (basic) for the previous year. Unusual items included a $24.6 million gain on marketable securities, mainly our investment in Far West Mining, partially offset by a loss on derivatives.
Paul Blythe, President and CEO of Quadra FNX comments, “Our financial results were driven by an increase in production from the underground and open pit mines and a favourable copper price environment. During the quarter, we reached significant milestones at our flagship Sierra Gorda development project in Chile, by securing a Joint Venture partner, completing financing and, subsequently, receiving the EIA permit. These milestones have allowed us to commence construction activities and we remain focused on achieving production in 2014. We have progressed the various elements required for a decision to proceed on Victoria including stakeholder discussion, engineering studies and permitting. With a robust cash balance of over $1 billion, and a continuing strong copper market, we are well positioned to advance our significant growth profile.”
Click here for detailed results.
