Cameco (CCJ) Q2 2016 Earnings Call

Cameco (CCJ) CEO Tim Gitzel said this is the worst market for uranium he’s seen in a decade

“I think I can say that, Q2 2016 has probably been the toughest quarter in the toughest market we’ve seen in the last decade. And our results for the quarter reflect just our challenging in the market environment where our industry continues to be. Uranium demand remains low and uranium prices depressed.”

He doesn’t see the lack of demand for the product ending anytime soon

“In the second quarter, the market remain quiet with with contracting volumes even lower than last year at this time. As a result, we saw both the spot and long-term uranium prices fall to new 10-year lows. In fact, the spot price for uranium has fallen 66%, since the Fukushima accident, including a 25% decrease since last year at this time. It’s not difficult to see wide, there has been no real catalyst to kick start a significant change to the current conditions.”

Supply for uranium currently exceeds demand 

“Consequently, there has been no change in the number of operating reactors in Japan since the first quarter. And as long as the bulk of their reactors remain shutdown, uranium inventories continue to grow. This at a time, when demand is lower overall and supply continues to perform well. Add to this the announcement, so premature reactors shutdowns mainly in the United States, which is also adding extra pressure to the supply demand equation.”

Freeport McMoran 2Q16 Earnings Call Notes

Freeport-McMoRan (FCX) Richard C. Adkerson on Q2 2016 Results

Oil production costs cut to $15 from $19 per barrel

“Oil and gas business, we cut our production cost from $19 a barrel to $15 a barrel.”

We have turned the corner for Freeport

“we have truly turned the corner for Freeport. And our ability to do that wasn’t just clear cut as we started the year. We proved that our assets are attractive. And our strategy and we’ll talk about how our financial strategy fits with our longer term business strategy is focused on leaving us with a core set of assets to build long-term value for shareholders.”

We have to live through the short term to experience the benefits of a positive long term market

“I’m going to talk about the longer term view, but we have to live through the short term to experience the benefits of a positive long-term market. So we sit here with a balancing act. The balancing act was to look at these debt levels, understand what it’s going to take operationally to get to those, then think about what next steps should we take to address the uncertainties of the short-term market. And we are still open and on the table for all strategic moves, whether that means selling assets, selling the company, we’re focused really on creating value for our shareholders, and to create that long-term value.”

There is ample copper supply but price is not high enough to incentivize investment

” rather than the market being overwhelmed with supply, there is ample copper around the world today. So, the market is fully supplied. But it’s not being overwhelmed with new supplies and continued production even with very modest demand growth. And as you go forward, existing mines will produce less. People aren’t investing in new projects. There is barriers to project development that relate to environmental, community, country issues. And as we’ve shown in this process that we’ve had about selling property, there is a significantly higher than current price required to develop new production.”

We’re still telling bankers that we’re open to ideas

“I mean, we started off the year saying that every asset we had was up for consideration for sale. And we made progress. We continue to have discussions. But we’re still telling the market and tell bankers if you got ideas for our business, come share them with us. And we’ve had a lot of interest and a lot of discussions.”

Tone from Indonesian government has been good for some time

“I would tell you the tone we’ve had with the senior government officials has been good for some time now. I’ve had the chance of watching President, Joko Widodo closely, as he’s been in United States and as he talked internationally about foreign investment and so forth. And there is not an issue of tone there. Within the country politically there is a feeling of resource nationalism, which is true of lots of places around the world today. And with us what’s going on here in United States, but I’m convinced the President and senior advisors understand the issues from an Indonesia standpoint.”

I tell buyers that I wish I were on their side of the table

“I keep telling all these people who are sitting on the other table about negotiating right now, I wish I were in your shoes, I wish we had a company where we could be buying assets now rather than selling, but we’re not, we can’t wish that away, we are what we are.’

Steel Dynamics 2Q16 Earnings Call Notes

Steel Dynamics (STLD) Mark D. Millett on Q2 2016 Results

Supply side dynamics have led to much improved market dynamics in steel industry

“The steel platform performed well in the second quarter. 2016 has certainly provided a changing landscape to the domestic flat roll market. Several positive macro shifts have resulted in significantly improved flat roll product pricing. Year-over-year, first half flat roll steel import levels have declined and customer inventory levels are better aligned to actual consumption, all supporting higher domestic sheet mill utilization. While demand has remained steady, these supply side drivers have led to much improved market dynamics. Our flat roll steel mills operated at full capacity during the second quarter, supported by the automotive and construction sectors.”

Weak sectors should remain weak, strong sectors will remain strong

“Relative to the macro environment, the steel-consuming sectors that were weak in 2015 such as energy, heavy equipment, and agriculture will likely remain so in 2016. However, those that have been strong or recovering are expected to continue this path, such as automotive and construction. 2016 forecast for these two largest domestic steel-consuming sectors remains positive. Automotive has continued forecasting strength. And overall, construction spending continues to improve with additional forecasted growth in 2016.”

Import levels are ticking up but not going to return to levels that imploded the market

” I think import levels are down about 25% year-to-date. But we do, indeed, see activity picking up a little bit. The global spread for hot band is in excess of $200 a ton today. And so, it’s natural for that to occur. But I think it’s been amazing that the import pricing, though, remains pretty resilient, I would say, unusually resilient and maybe there is import offers now about 50 bucks off in the domestic market. And as I said, that’s a little unusual, a little more resilient. The trade constraints have totally eliminated China and the other primary importers from the marketplace. And import offers are coming in through what we would consider somewhat non-traditional sources, Vietnam and others. And those are a little less accessible, and the network from a customer base importing those steels is a little less reliable at this moment in time. And in any event, import pressure is not going to materialize in any great form in Q4. And I am somewhat confident that it’s not going to return to the levels that really imploded on markets at the end of whenever that was, 2014 and early 2015″

Obviously the elimination of China has buoyed the market

“Obviously, the elimination of China has buoyed the market currently. I do think that the coated and cold rolled sheet spreads, which are at historical highs, will probably remain so as long as China has shut out. As long as the trade cases are in place to impede, they are not going to eliminate, but they will impede the import pricing. So I think those spreads are not just an aberration. I think they are going to be around for a while. Ultimately, longer term and when I say longer term, years out – over the years, I think some of that material will somehow look find its way back into the American market either through other converters or through manufactured goods. There is a good portion of imported steel in refrigerators and cars and other things. So, seriously, I’m not smart enough to know long term what the impact is. ”

Theresa E. Wagler – Chief Financial Officer & Executive Vice President

Shipments increased 9%

“For the second quarter, steel shipments increased 9% to 2.5 million tons, as volumes improved across all divisions except in special bar quality products. The SBQ market continues to be challenged by weak demand dynamics.”

Platform utilization in flat roll was 95%

“Conversely, domestic flat roll steel utilization is strong, as imports have declined and customer inventory levels are better balanced with actual demand. Even though second quarter platform utilization was 95%, it’s a bit misleading as the Flat Roll Group produced over the theoretical quarterly capacity, offsetting lower utilization at the structural and engineered bar divisions, which operated at 82% and 53% respectively.

Alcoa 2Q16 Earnings Call Notes

Klaus Kleinfeld – Chairman and CEO

Opened 3D printing production facility

“d we also opened the state-of-the-art, 3D printing metals powder production facility geared towards making metals for 3D printing, mainly for titanium, nickel and aluminum alloys powders in the aerospace world.”

The commercial aerospace market is clearly in a transition year

“2016 in the aerospace market is clearly a transition year, and we have been seeing some of those actually today and the announcements from Farnborough, clearly a world of two different halves. And the first half, if you look at large commercial aircraft deliveries, they have been down by 1%. At the same time, if you calculate the full year, we believe that it’s going to be flat to plus 1%. And we do see that there is now a very careful ramp-up of new models increasing [ph] problems we’ve particularly seen on some of the new technology and more on the jet engine side have been solved, and the orders are coming in. However, the lower orders are there for legacy models. But we do have — we have seen particularly on the jet engine side, strong June deliveries, second best month on record. And we do believe that the second half is going to show a growth of 6% versus the first half. We do also believe that given this transition that demand is going to move over or has moved over until 2017”

Aluminization of automotive market continues

“So, let’s also take a quick look onto the automotive market. And with this, let me be very clear, the aluminization, as I call it of North American auto platform, continues”

A very different year for aerospace because of innovation

“This is a very, very different and a bit odd year because of the enormous amount of innovation that’s going on. And the innovation actually is the foundation why there is such a strong demand. I mean when you see the new jet engines getting 15% — on average, 15% of efficiency improvement, that’s something.”

William Oplinger

Chinese demand growth driven by stimulus in property markets

“Let me discuss China briefly. 2016 Chinese demand growth of 6.5% is driven largely by Chinese government stimulus in the property markets. However, we have also seen improved electrical end use and strong demand in the transport and packaging sectors. On the supply side, China is increasing by roughly 3% but it’s important to know that China’s net supply growth rate is the lowest it has been since the global financial crisis.”

BHP (BHP) CEO Andrew MacKenzie

BHP (BHP) CEO Andrew MacKenzie says it will be another 10 years before the iron ore market comes into balance 

“There are some commodities, like oil and copper, where there is a natural decline because pressure drops off, grade drops off.  One of the markets that will take longest to come back into balance is the iron ore market.  The reality is we’ve settled down now to a price that we would say is more realistic on the basis of fundamentals of supply and demand.  We’ve had such a long boom. To walk that through, in my view, may take another 10 years.”

So you’ve got to keep your cost structure lean 

“Consolidation, particularly of the high-cost producers, it will carry on much longer than you think they humanly should.  In the meantime, you’ve got to be at the bottom of the cost curve, you’ve got to be doing everything I’ve said, running things in the most productive way possible, or your hedge funds won’t want to invest in us.”



Source: Bloomberg Interview

Freeport McMoran at Deutsche Bank Conference Notes

Freeport-McMoRan (FCX) Deutsche Bank 2016 Global Industrials and Materials Conference (Transcript)

Kathleen L. Quirk – EVP, CFO and Treasurer

Focused on cost and capital discipline

We are very focused on cost and capital discipline, we have been for a number of years, and we really have tightened that focus with the decline in commodity prices, as the others in our industry are doing the same thing, but we’ve made very significant achievements in not only reducing capital expenditures but also in continuing to focus on cost reductions

Positive about outlook for copper

we feel very positive about the long-term outlook for copper. We are realistic about the short term, we recognize that copper is currently influenced by the uncertain situation in China in terms of demand growth there and other uncertainties about the economic growth, but where we really take comfort in looking at the copper market is that the supplies of copper are very hard to come by.

It takes a long time to develop new supply

We know that because we have been working in this industry for a very long time. It takes a very long time to develop new sources of supply, and older mines over time grades will decline and production will fall off, cost will go up if you have to go underground or have longer haul.

Industry hasn’t been developing supply

we know that the current price of copper of just over $2 a pound is not sufficient to create new investment. Everyone in the industry is cutting back investment, trying to reduce cost, but that’s going to have a meaningful impact we believe on the industry as we go forward. The new mines or the expansions that were being pursued are largely coming to an end and it takes a long time for new supplies to be developed, if they can even be developed.

Underinvestment in oil can’t go on forever

This can’t go on forever, like in copper as well, you can’t not invest and expect to maintain or grow production, but we will be able to do this during a period where we are trying to reduce debt. And you’ve seen oil prices today approaching $52 plus for Brent, and so you can see here, in 2017 we are expecting our oil business to contribute to our debt repayment objectives.

Debt capital markets have improved significantly

We are looking at that, we are looking at a broad range of opportunities available to us. The market has improved, the capital markets have improved significantly, particularly the bond level. So we are monitoring those conditions and we’ll look to refinance debt as it makes sense economically, but our real focus is on deleveraging.

Potash (POT) CEO Jochen Tilk at Goldman Sachs Materials Conference

Potash (POT) CEO Jochen Tilk thinks the market for the fertilizer has finally bottomed

“We’ve made some comments few weeks ago at our call and we communicated some cautious but supported optimism that we see the markets in a more positive light and we ought to translate that. We think that things have bottomed, if that’s the right term in terms of sentiment, in terms of potash prices.  Now 75% of the corn plus is planted in the U.S. So a lot of it was done, but we flushed our inventory out and we’re now looking forward to the some of it and the fall season. And the third one, probably somewhat more surprising, when farmers’ economics in the U.S. good, they’re certainly better than they were last year and they’re better than they were a year before. If you look at the affordability fertilizer versus the farmers’ economics, they’re quite attractive. You know that corn has come back $4 and soybeans are $11. A lot of acreage plant at $93 million acres in U.S. So they’re good basics and that all is attractive.”

He said farmer economics in Brazil are more important than political stability in Brazil

“We look at Brazil, we had good engagements there. Brazil is a huge producer of soybeans, a very attractive market. Political stability is welcome but is not the biggest reason there. Farmer economics are much bigger driver. They export in U.S. dollars — 70% of resilient crop is exported. So we see good engagement.”

Not trying to go after market share in the current environment

“People say well that would give you the opportunity perhaps to go for market share. Our approach to market is to balance supply and demand. And we have to be very clear, when you choose that right, we think it’s a better business model, it’s one that provides better margins. It provides better returns on all assets, it’s one that’s sustainable in that market that we are in, not just for historic experience but just looking forward. And the biggest driver in making that decision and looking at the market is really how we see supply and demand evolving in the next few years.”

Potash (POT) CEO Jochen Tilk said their was euphoria in the potash market about 8 years ago

“And keep one thing in mind, in the last 10 years a lot of money had been spent for expansions. Clearly there was a sense, if not euphoria, certainly enthusiasm, 7-8 years ago when those decisions were made. They were all made more than five years ago, more than half the decade ago. They’re now coming to completion. There’s really very little left. But give or take maybe I don’t know $50 billion may have been spent in incremental expansions, brownfields and greenfields in the next decade. So the same period going forward. I would doubt very much that much will be invested. I think everyone will draw from their expansion, so that the incremental investments or the new investment in capacity will be very little for a number of reasons so that in the next 10 years we will certainly see a very different environment in terms of building new capacity than we have in the past.”




Cliffs Natural 1Q16 Earnings Call Notes

Cliffs Natural Resources (CLF) C. Lourenco Goncalves on Q1 2016 Results

We finally saw boards of the major iron ore producers rein in management teams

“I have spent a great deal of time on these quarterly calls explaining that the majors’ stated intention to overproduce iron ore and push iron ore prices down to force their competition out of business was their strategy of self-destruction. Several times I expressed my belief that the Board of Directors of these companies would act to separate their respective companies from the individuals who publicly say that lower iron ore price is something beyond their control and not a consequence of what they do, how they manage their business, and mainly how they communicate their actions to the public. Well, we finally saw the inevitable come to fruition during the past quarter.”

High level departures at BHP and Rio hopefully portend more rationality in production

“We can only hope that these high level departures are indicators that, going forward, the individuals that are now in charge at these majors will show better common sense and will express themselves in public venues in a more responsible manner, one that’s best for their shareholders, very importantly, for their host country, Australia”

The shrinking footprint of US steel is positive for Cliffs

“What’s good for Cliffs is that one steel company suffering the most is not one of our clients, it is U.S. Steel. That has been a real positive for Cliffs’ well established long-term customers. What’s good for Cliffs’ customers is good for Cliffs. And the shrinking steel footprint of U.S. Steel is actually an overall positive for Cliffs. I will be glad to explore this issue during the Q&A portion of the call.”

I’m a shareholder and everything I do will be to protect shareholders

“Look, Nick, I am a larger shareholder, every single action that I have taken in this company here since August 7, 2014 was to protect the shareholders. I will continue to do so. Everything I will do going forward will be exactly like everything I have done so far, to protect the shareholders”

This business is not about cash production costs, it’s about cost and value in use

” price will not go below $45 because below $45, the majors get crazy. The majors who start to try to stretch payables, things like that. Because it’s not about – this business, Tony, is not about cash production cost per ton, this business is about cost and value in use. Cost per ton is just a metric. You produce for a demand that doesn’t exist, you are going to get hurt. You have to carry a terrible, horrible, tremendous overhead.”

Goncalves is still crazy

Analyst: Yes, hi, Lourenco. My question was answered already.
C. Lourenco Goncalves – Chairman, President & Chief Executive Officer: But mine was not, what’s the current price expectation of the desk of JPMorgan for iron ore, Mike?
Analyst: Well, let me just say they’re below your expectations. I realize that our commodity team (44:59).
C. Lourenco Goncalves – Chairman, President & Chief Executive Officer: When are you guys going to fire these guys at the desk; they are making your company look ugly.”

China will have to decide whether they will be a superpower or a rogue country

“the problem in China right now is how China will position themselves to continue to behave as a superpower and not to behave like a rogue country. China is in a very decisive moment. Are they going to be part of the developing world or they are going to continue to be something very big but very bothering (46:57) for everyone else. And I believe that I know the answer. I believe that China will be a superpower, will be a first world country.”

Iron ore is not a typical commodity

“The problem is not the Dalian Commodity Exchange, the problem is not the behavior of the Chinese. The problem is the fact that iron ore is not pork bellies, iron ore is not soybeans, iron ore is not gold, iron ore is not a commodity like any other commodity, iron ore is a controlled commodity. There are three companies that control everything in the iron ore business, and four companies that, together, have 84% of the market. BHP, Rio Tinto, Fortescue and Vale. So it only takes one of this four or two of this four to say, enough is enough, or to start charging a premium over IODEX, or even say, you know what, my friends, Chinese, I’m not going to use your Dalian Commodity Exchange index anymore as my reference. You want to buy my iron ore, you’re going to have to negotiate with me one on one. It was like that before.”

There are four companies in iron ore that control everything

” there are four companies in the iron ore world that they can change everything, if they change their bad behavior in terms of pretending that they don’t have pricing power. They do have pricing power. These commodities are controlled commodities. Prices go up and down because of BHP, because of Rio Tinto and because of Vale. They can deny this as long as they want, but every time their stock price is in the trash can, they change their behavior. Every time their executives speak out of school (52:14), one is fired. So if the new guy that took over, over there, if they continue their speech, they will be next. “

Potlatch 1Q16 Earnings Call Notes

Potlatch Corporation’s (PCH) CEO Mike Covey on Q1 2016 Results

Sold 172k acres in Central Idaho for $114m

“We announced this morning that we have sold 172,000 acres of timberlands in Central Idaho for $114 million. As many of you know, Central Idaho is our realized strategic timberland holding based on productivity and location.”

Norther Idaho generates $117 EBITDA per acre, which is 5x central Idaho

“In addition, the truck-haul distance is shorter in Northern Idaho which results in much higher stumpage values in Central Idaho. For these reasons, our Northern Idaho property generates a $117 of EBITDA per acre, which is over 5 times that of Central Idaho.”

Northern Idaho appraised at $2000 per acre

“As you know, we had an appraisal completed in 2012 when log prices were much lower that concluded the 352,000 core acres of our ownership in Northern Idaho were worth of $2,000 per acre.”

Eric Cremers

We had seen a nice run in lumber prices our expectation is for modest gains going forward

“we had seen a real nice run in lumber prices. Our expectation from here is for continued very modest gains in pricing. We are not really yet to the heart of the building season and with the U.S. dollar continuing to be relatively weak, we think that bodes well for the future.”

Dealers have learned to operate with low inventories

“It’s hard to get good data on where things stand out in the distribution network. Our general feeling is that dealers have learned to operate with very low inventories. It’s more of a just in time kind of a business. So any change in the outlook or demand or lumber or housing starts, shows up very rapidly in the form of price increase or decrease. So I think it’s fair to say that that inventories are – they’re relatively low levels. “