Copper Miners Dive on Diverse Results

PUBLISHED: Oct 31 2013 @ 09:31 | Comments (0) | More info about Lou Gutheil

Mining giant GlencoreXstrata (LSE:GLEN) and its cousin, Antofagasta (LSE:ANTO) released their production reports for the third quarter today. Drops in the share price of both companies help to drag the FTSE 100 down from it ethereal heights.

Antofagasta shares dropped 3.68% to 864.50, a difference of 33.0 pence. By comparison GlencoreXtrata shares slid 0.55% to 343.15, a 1.9 pence change. Keep in mind that GLEN’s market cap (as of 29 October) was £24,344 million whilst ANTO’s capitalization is 60% less at £8,522 million.

What I found interesting was the actual copper production numbers. GlencoreXtrata’s total own sourced copper production increased by 23% for the quarter year-on-year to 1,070,900. Antofagasta copper production declined by 3.4% to 174,200 tons.

Whilst ANTO focuses on copper, gold and molybdenum, Glencore mines a much broader spectrum of minerals, including zinc, lead, silver, nickel, platinum, cobalt, and palladium. ANTO operates the Esperanza district in Chile, whilst Chile is one of a multitude of countries in which GLEN operates.

Both companies indicated in their reports that they expect to finish the year in line with market expectations. In fact, year-to-date, Antofagasta production is up by 4.4% over the first three quarters of 2012, and gold production was up 8.0% for the same period. So, why, I ask myself, did the value of both companies decline after release of their reports. The answer, I believe, lies outside the context of the two companies and is more closely related to a general aversion to mining stocks this year.

Demand for minerals and ore has been weak. Shares in both companies saw sharp declines during the entire first half of 2013. In fact, the individual charts for Glencore and Antofagasta almost perfectly conform to the overall FTSE Mining sector for 2013. The bottom fell out of the sector between 13 January and 13 July by about 30%. During that same period Glencore dropped over 35% and Antofagasta dropped by nearly 40%. Both of our stocks of the day and the index have gained ground since 13 July, but only modestly so. The index has gained back about 40% of what it lost. Before its decline today, Glencore had regained close to 50%. Antofagasto had managed close to a 24% recovery before today.

Sure, the sector is defined in part by GLEN and ANTO, but not so much that the sector follows them. But I do think it is fair to say that the sector is defining them. I have checked the one-year charts of more than a few mining companies, to discover that, by and large, all (that I have checked) show essentially the same pattern.

My keen skills of observation lead me to conclude that it doesn’t matter for the moment whether you are GlencoreXtrata or Antofagasta, and it doesn’t matter how good you quarterly results are, investors are not as keenly focused on individual mining companies as they are on the sector overall.

So . . . Great job, GLEN and ANTO. Investors just aren’t interested at the moment. Cheerio.

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