Alcoa (AA) Presentation at Bank of America Merrill Lynch Conference

Roy Harvey – President and CEO

China is key in the aluminium industry

“when we look at the world today, we think about the impact that China is having on the entire aluminum value stream. We see a constructive market. We see a bauxite market that is balanced. And any excess bauxite that might be produced, there’s an insatiable appetite in China to bring that in-country in either stockpile or use….The entire world market, we follow the alumina price index, but it’s very much tied back to Chinese demand and the number of cargoes going in there.”

A balanced market for alumina

“we continue to see a balanced market through a small surplus. We’ve seen some ups and downs in prices over these last 12 months, from the end of 2015 where we saw simply too much alumina in the market to a period of time in the middle of 2016 where prices had recovered very significantly to the latest headwinds that we see today, although it starts to look as perhaps we’ve reached the plateau as China starts to buy alumina again.”

three connected markets

“we see these three constructive markets, each one of them feeds into the next – bauxite into alumina, alumina into aluminum. But across the board, I see a lot of opportunities for the future.”

China drives world demand in the bauxite market

“the vast majority of bauxite demand sits in China. There is some third-party demand outside, but for the most part it’s a China story. I think what we’ve seen over these last few years and we’ll continue to see is that China continues to struggle to find very high grade, very cost efficient bauxite mines to the point where they actually mine some bauxite underground.”

Higher costs making miners selective on bauxite mining

“with bauxite prices moving up slightly, as well as coal prices that are directly tied to both alumina and aluminum in China specifically, you’re starting to see that cost push that’s driving a higher cost and, therefore, they have a lot more thought about how can they run their plant more efficiently. And that drives them to be more selective about the bauxite that they use.”

Glencore 2Q16 Earnings Call Notes

Glencore’s (GLCNF) CEO Ivan Glasenberg on Q2 2016 Results

12 fatalities

“Regrettably, we’ve had 12 fatalities from four incidents at our mines and once again these fatalities have occurred at our focused assets and while these are Kazakhstan, Zambia and DRC. And we’re already putting in maximum effort to improve the culture and the mining operations in these focused assets and we’re already working hard to ensure we have zero fatalities across the board.”

No new coal mines being funded around the world

“Where do we see coal going forward over the next 12 to 24 months, the big thing we got to look at in coal is no new supply in the world which is a very important issue. You don’t see anyone building new mines or increasing production of mines, so I would say we’ve got to look carefully at supply. You don’t see new supply coming into any of the markers, okay, China we will talk about separately but you do see Indonesia and countries like that producing the export of their coal, and we see in Indonesia reduce from the top 421 million tonnes of exports during 2014 and they dropping this year on to 350 million tonnes. So a significant decrease coming down from Indonesia, no new supply from Australia, from Colombia, South Africa, et cetera, that’s all relatively stable and no new big mines being built anywhere in the world.”

We don’t develop greenfield projects

“Yes, regarding exploration as you know we are not lovers of Greenfield projects, so we don’t have an exploration team going out there, exploring and looking for new discoveries, that’s definitely not part of us. Where we do have a bit of exploration is around our existing asset base to ensure that we always got replacement and we are not losing production at our existing asset base and extending the life of our existing assets and that’s what we are always looking to do and we know around our existing assets there is a lot of reserves around which haven’t been fully explored and that’s where we will really do the exploration. So it’s obvious that’s why we have a lot lower exploration costs than our peers who are looking for big and new discoveries, that’s not part of our game because we have no intention of developing a new Greenfield project.”

BHP Billiton FY 2Q16 Earnings Call Notes

Andrew Mackenzie

China’s transition from an investment heavy to services economy has been faster than anticipated

” China’s economic growth is slowing as it matures. And although, its headline GDP growth is consistent with our expectations, its composition has changed more quickly than most anticipated. We see signs of a faster transition from an investment and heavy industry-wide economy to one led by services. And the strength of the service sector creates employment, which allows acceleration of important structural reforms including the State-Owned Enterprises. But in the near-term, as industrial over capacity is reduced, this will further constraint demand for commodities and these near-term changes have been amplified by disruption to the oil markets and broader global uncertainty.”

We see significant upside especially in oil and copper

“the bottom chart here illustrates the significant upside, we see particularly in oil and copper longer term. Because although these markets are currently well supplied, we expect demand to continue to grow, while well decline in oil and grade reductions in copper erode supply.”

An environment where buy is better than build

“this is an environment where in many respects buy rather than build is more attractive and I think doubley [ph] so, one because buy is potentially cheap and Peter referred to that a little bit and saying it’s not quite a war chest, but who knows what might come under distress in this sort of environment. ”

Long term price assumptions haven’t changed much

“We update our price estimates every year. And sometimes, when we feel things have moved. We might do a little bit more frequently, as we did recently to look at the valuation of our petroleum business. But I would say that, our long-term prices haven’t changed much, with the exception of oil. And I talked about that earlier. Just trying to understand the transition period, that is more difficult.”

As we get out a year or two we start to see markets coming back

“What I’m trying to say, we as a company I think are reasonably sure that we’re in a for period of sustained lower prices with volatility. Potentially for some years and we have built the company that’s able to handle that. but as we go through some of our commodities and we’ll see how that turns out, we do as we get out of year or two, start to see markets coming back into balance domestic gas then oil, then copper and longer term, potentially potash.”

Freeport McMoran 4Q15 Earnings Call Notes

Freeport-McMoRan (FCX) Richard C. Adkerson on Q4 2015 Results

We face serious challenges with our balance sheet

“This is going to be a different call than we have – have been done in the past for obvious reasons. We face serious challenges because of what’s going on in the marketplace and because of the situation with our balance sheet, and we want to convey that we’re addressing this seriously and with a degree of urgency and we’re very focused on it.”

This is the worst of the scenarios that we were looking at

“as we talked about it at the end of the third quarter, we were looking at various scenarios that ranged from a further decline in prices at that time to other more positive scenarios. We’re experiencing the worst of those scenarios right now, with copper dropping to $2 and oil dropping to $30.”

What are we doing about it? We’re aggressively managing cost and capital raising transactions

“So the issue is what are we doing? What’s Freeport going to do about this right now? And I want to convey to you what we are doing…We are aggressively managing cost, CapEx, production, cash flow and working for capital raising transactions to address our balance sheet.”

Issued $2B in equity and are talking to parties about asset sales

“We’ve taken steps to protect our balance sheet by suspending our dividend. We raised equity proceeds through two ATM initiatives that have generated $2 billion of equity for us. Now we’re going to talk about further steps. As we look at restoring our balance sheet to reflect current market conditions, we’re going to focus and manage our cost and capital and continue to generate cash flow in a safe way. We’re going to take immediate steps to reduce debt to enhance shareholder value. We are in active discussions with a number of parties on alternatives for asset sales.”

The copper market is very different than other commodity markets

“So much talk about copper market commentary that I’m just going to make a couple of comments about it. Unquestionably, the uncertainty about the global economy is negatively impacting financial market sentiment. China’s demand growth is slowing. Our Western demand is not as good as we and others had hoped it would be, but it’s still expanding gradually. I’m not going to debate anyone about the market. The market is what the market is. But the facts are that in the copper business differs from other commodities in that there is not an enormous excess supply in inventories”

The story is not as negative as financial markets are reacting

“The story is fundamentally, in today’s world, the business we’re seeing is not as negative as the financial markets are reacting to it. We have no particular insight as to what’s going to happen in China in the future. We have to prepare ourselves for what the market is and the market is we’ve got $2 copper and we’ve got to react to it.”

We have adequate liquidity

” We have total debt at the end of December of just over $20 billion. We have adequate liquidity, as we go forward. We have very limited amounts, $200 million of debt maturing in 2016. We have no funds drawn under our $4 billion bank credit facility. I’m sure you all have followed the rating actions taken on our company and have also followed the rating agency’s public comment about their broadly based reviews of credits in the metals and mining and energy sector. We have worked with agencies over the year to demonstrate our commitment to protecting our balance sheet, and we’ll continue to do so.”

The situation has developed very quickly and aggressively

“I know everyone would like to be more specific now. I would like to be more specific now. The situation has developed in a negative way very quickly and aggressively, and we’re responding to it. And we will report to you at a time when we can be more specific. But today, we can’t.”

Going to look at the opportunities that we have in the oil and gas business

“Well, as I said, our strategic focus is around our mining business, so that’s going to be the focus. We are looking to see what market opportunities we have available to us with our oil and gas asset to generate value, and we’re going to assess how to do that either near term or over time. I mean, we are not going to make irrational decisions based on just current market conditions. But we have a number of interested parties who are anxious to talk with us about how we might go forward with it.”

Going to use proceeds from asset sales to reduce debt

“We recently restructured our bank credit facility so that we’ve agreed that half of any asset sales we have will be used to reduce debt. Practicality of it is we’re going to use proceeds from asset sales to reduce debt. I mean, that’s just what – that’s why we’re doing it. So there’s not any real restriction now”

Joy Global at Morgan Stanley Conference Notes

Ted Doheny – Executive Vice President, President and Chief Operating Officer

In the next 10-20 years hard rock mines will be going underground

“In the next 10 years to 20 years about 20% of the copper, the hard rock mines will be going underground. The easy stuff has gone and that’s where you’ve seen our acquisitions in the hard rock space as this market is converting from drill and blast operations to mechanized mining. ‘

Commodity prices reflect the supply/demand situation so for prices to stabilize you’re going to have to see something happen to either supply or demand

“The bearish tone was the reality. So, if we look out to the markets that we’re seeing prices are resultant of the supply and demand situation. So, if we have to wait for a pricing to move something has got to happen with the supply or the demand.”

There’s an oversupply of commodities

” looking at our various commodities around the world, there is an oversupply of the commodities through this huge ramp-up in commodities in the previous cycle. That’s got to be worked through.”

There’s been a lot of automation and mechanization in mining in the last 20 years

“part of what we’re doing in mining this same thing that happen in United States. If you went back 20 years in mining in the United States there’s 1,000 of people in mining. So part of what we done is bringing the mechanization and automation to mining which productivity very simply means doing more with less people.”

Stability in China rests on having jobs for people, which is a counterbalance to increased productivity

“So it’s going to be less people doing the work absolutely, which is a real issue in China right now because part of the stability of the China is jobs.”

We’re managing our cash aggressively

“we’re really aggressively managing our cash. We talked openly looking at the dividend going in the next year on the cash as well. That’s important to us when we did the dividend to show that we are a service company but it’s also important and keeping our investment grade rating. So as we’re looking next year with that step down, so we want to make sure we managed that part very carefully.”

Rio Tinto 2Q15 Earnings Call Notes

The rate and nature of Chinese growth is changing

“Inevitably, the rate and nature of the growth is changing and it’s becoming less commodity intensive and more consumer focused. But let’s be clear, in the new normal, we’ll see continued economic growth from this larger base, including the ongoing increase in the long-term demand for all of our commodities.”

Tier 1 assets are key in mining

“There’s no substitute for Tier 1 assets. Across our commodities, we have a portfolio of leading assets, providing robust margins and cash flows. Others who own or develop third or fourth-quartile assets on a highly-geared balance sheet may do okay when prices are high, but it’s extremely challenging for them in the long term, and particularly in today’s environment. Well-run Tier 1 assets backed by a sound balance sheet is the only strategy that can create sustainable shareholder returns”

We believe that the iron ore market is fundamentally in balance

“a lot of things will happen during the rest of this year and who knows where sentiment will actually go. But if you look at the basic numbers, if you look at our forecast, which a lot of work and effort has gone into, we believe that the market is fundamentally in balance.”

We’re doing just fine at $55 iron ore

“With a unit cost of $16.20 a tonne, or converted to today’s exchange rate and energy costs, $15.20 a tonne, compared to an iron ore price of $55 a tonne, we’re doing okay. The margin is all right. And for me, sitting here today thinking that I’m going to sacrifice that margin, so that someone else somewhere in the world can bring capacity back on, to me, it just doesn’t make sense.”

I’m not about ticking boxes

“As I have mentioned during my comments, I’m very, very focused on shareholder value. I’m not about ticking boxes. I’m not about doing something, because it’s on somebody’s list, or it’s been reported in the media, or whatever. I’ll do it, because it delivers shareholder value. I believe it because it’s the right thing to do for shareholders. ‘

There aren’t enough copper projects coming on stream

“Copper’s going to be tough going forward. There aren’t enough projects that are coming on stream. Our projects are tough, because the ore bodies are complex; they’re deeper ore bodies, lower grade in a number of cases, and the approval cycle is extended.”

Energy costs benefit with a bit of a lag. Also generate energy from other sources

” as the price falls, we get a bit of a lag with regard to how it goes through into the cost structure. That’s one issue. Second one is, a lot of our energy inputs are self-generated in many cases. If you take the smelting system by way of example, we generate 50% of our own energy there, and a lot of hydropower there as well. So not all of our energy’s obviously in the oil sector.”

It’s getting tougher for us to reduce our costs

“we’ve reduced our costs by $5.5 billion over the past 2.5 years, and it is getting tougher.”

The industry may not get back to the demand that there was before prices started to decline

“post to global financial crisis, the market dynamics have actually changed. If you thought that the industry goes through cycles and you return to where you came from, I think the new normal is actually signifying that the return probably won’t be to the point that you left before prices started declining.”

Costs are reducing, efficiencies improving across commodities

“I think that’s a function of everything. We’re seeing, across the board, that costs are reducing; efficiency is improving; people are expecting greater value for less; and so on. And I think that we’ll see that across commodities as well. Still be a healthy place to be, but not the heady heights that we hit.”

We are asking ourselves are we spending enough to sustain installed capacity

“we are getting to the point where we’re asking the question now, are we making sure we’re spending enough to sustain that existing installed capacity, because if you cut to the chase, that installed asset base is a real powerhouse of this Company and the growth facilities that will come, will take their place in that portfolio. But the engine room that’s there now has to be sustained. And so I think we’re at a fairly balanced level here now.’

Southern Copper 2Q15 Earnings Call Notes

Maintain our confidence in copper

“we maintain our long-term confidence in the positive fundamentals of this market. Looking at demand, we’re expecting worldwide copper demand growth of about 3% for the year. That is new demand for refined copper of approximately 700,000 tons. The main drivers are a 4% demand growth in China, a continuation of demand recovery from export European industries and a stable U.S. copper demand in line with the American DVP increment.”

Structural factors will continue to affect supply

“On the supply side, as we have expressed in the past, we believe that several structural factors will continue to affect supply from new projects and existing operations as well as the scrap production. Among these factors, we want to emphasize delays in project startups, technical problems, labor unrest, excess government taxation and other difficulties.”

Current prices are not sufficient to promote supply growth

“We also want to emphasize that copper prices at current levels are not sufficient to promote the necessary future supply growth, thereby improving the strong long-term fundamentals of our industry.”

We don’t forecast copper prices, but we are expecting more activity on the demand side and weak supply trends

“we don’t do a forecast on copper prices. Even though we’re in the business of controlling copper cost, not in the business of forecasting copper prices. Having said that, we’re expecting the second half of the year, a combination of more activity on the demand side, particularly on the Chinese demand and this trend on supply underperformance to be hold or even deepen a little bit due to the current price environment.”

We think the headwinds to speculative demand have been absorbed

“all the macroeconomic headwinds have been — have affected the speculative segment of the demand and that has been — most of the impact has already been absorbed. So we believe that that portion of the demand will not be a negative matter in this second half of 2015.”

Freeport McMoRan 1Q15 Earnings Call Notes

2015 is a transition year for investments

“I want to look back on our January call when we discussed this year 2015 as being a bridging year as we complete our major copper expansion projects that we started in 2010 and transition to 2016 when we will realize the ongoing benefits of these investments. These projects will generate volumes that will be accompanied by lower cost, lower capital expenditures. All of this adds up to a significant free cash flow generation which will not be dependent on higher copper prices.”

Optimistic about long term outlook for copper

Now we remain very optimistic about the outlook for the copper markets. We supported by the world’s need for copper and the challenges in developing supplies and maintaining supplies for copper, but we are cognizant of the near term uncertainties and commodity prices so we’re going to continue to be diligence about controlling cost and will remain flexible to respond to market conditions.”

Evaluating a public listing of a minority interest in Freeport Oil and Gas

“We are going to talk today that among these alternatives we are considering a public listing of minority interest in Freeport-McMoRan Oil & Gas. Publicly trated Freeport-McMoRan Oil & Gas would — values of our oil and gas assets through a public market evaluation and enable us to expand the financing alternatives for our oil and gas operations on a standalone basis. Subject to market conditions this alternative essentially would be completed in late 2015 following the completion of an SEC review of the required registration statement”

Copper surplus that people were forecasting has not materialized

“When you step back and look at where we are right now in 2015, the surpluses that had been projected for a number of past years are not developing as they were estimated. Projects have been delayed, production has been interrupted and the market has not moved into a large surplus position. The focus by investors and people involved in the industry has been on China, with China’s lower growth rate and uncertainties about its economy, its base has grown significantly. The government is providing economic stimulus and China’s need for copper is going to continue to be significant and the key factor in terms of near-term.”

The market isn’t recognizing the value of the oil and gas business

“There is a big disconnect between the value of our oil and gas business within Freeport-McMoRan today and the public market perception is stand alone. I guess we have had more success than anybody with the drill bed in the last two years and it’s caused more spending but it is also likely reflected in our equity. So the aspect of being able to get that visibility for the Freeport shareholder we think is an important part of it.”

Reported reserves are a function of prices

“it’s important to note that reserves are function of prices as well. As prices go higher economic limits extend and reserve volumes increasing, lower prices put limits on how much reserves you can add at a particular point in time.”

Joy Global FY 1Q15 Earnings Call Notes

We expected a tough quarter, but this was tough

“The added challenges to our market certainly impacted our first quarter of the year. We had expected a slower first quarter with many of our customers taking extended production shutdowns. However, the further deterioration seen in some of our major end markets resulted in a tough quarter for us.”

Economic landscape ahs become more challenging

“Over the last several months, the global economic landscape has become more challenging. While growth began slowing in the second half of 2014, the fourth quarter saw U.S. growth fall sequentially to 2.2% while the Eurozone remained weak with a 0.3% growth.”

Long term copper fundamentals remain positive

“While there certainly will be periods of volatility in copper markets, the fundamental long-term dynamics remain positive and provide an investment opportunity for most of our customers.”

Coal is probably the best opportunity for a comeback

“globally looking at it, Jerry, it’s probably the best opportunity for growth coming back is actually coal because we’ve had 2 years of reduction there. ”

“the U.S. — actually, the U.S. coal business, our service levels in the U.S. was actually flat to slightly up. So we do see that as some positive there after the 2 years reduction.”

Big change is in copper markets

“The big change, though, in the quarter for us was in the copper markets. So we’re seeing that drop-off in the first quarter, with the price of copper dropping $0.50, was a change for us”

Copper companies are reacting to price downturn with austerity

“I think what — part of what we’re seeing, as what we saw with coal when coal first took the downturn, is there is this immediate impact on margins for our customers, and there’s this push towards austerity type of cost reduction, which we’ve learned in coal, having been in and out for the third year, that, that ends up turning because it’s not sustainable. And so part of what we see in copper is just a sign of the price went down pretty materially, clearly impacting margins. And I think there is a short-term austerity type of response that we think will be rectified as we get to the back half of the year because fundamentally, copper is still in very nice shape from a supply/demand perspective. So we see it being kind of that early-stage initial reaction. And our customers know that that’s not going to win long term, but they do have to do that because they’re being, in a lot of cases, instructed from their management teams to execute in that kind of austere type way.”

Rio Tinto 4Q14 Earnings Call Notes

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Cash from ops 14b

“We reported underlying earnings of $9.3 billion. We increased volumes and reduced costs, which enabled us to significantly reduce the impact of weaker prices. A focus on cash generation throughout the business led to net cash from operations of $14.3 billion. ”

We’re now in a position of strength

“We’re now in a position to strength, which allows us to not only meet our commitment to materially increase cash returns to shareholders, but also to be robust against low prices, to be in a position to take advantage of opportunities, which may present in the future.’

100m tonnes of new iron ore next year but only 20m in new demand

“If you look at 2015, we’re expecting that about 100 million tonnes of new capacity will come on. There will be growth in demand of about 20 million tonnes.”

Our cost is $17, still making nice margin

” if you take a current spot exchange rate and the spot energy price into account, in the iron business, costs are running at around $17 per tonne cash cost, as compared to the selling price today of $62 a tonne.”

You have to take off a lot of capacity to really balance the market

“as I’ve said before, if you want to balance the market, then you can’t just take off three or five million tonnes and expect that suddenly the price is going to go through the roof. You’ve actually got to take off sizable chunks, probably 100 million tonnes of capacity.”

No OPEC in iron ore

“So whether you like it or not, there is no OPEC in iron ore, its independent producers making their independent decisions. And the decisions that we make are in the best interest of our shareholders. That’s very, very important.’

Hi cost producers didn’t phone us up and say I’m bringing iron ore to market, so I’m not doing anything for them

“No, look, these people when they came into the market didn’t phone me up and say, jump for joy, I’m going to bring on some high cost production. So I don’t feel any responsibility for them. Now, yes, I’m sad for employees and communities and so on, but our people need to realize that the mining industry is cyclical. It goes through cycles. It’s supply and demand. It’s seasons. It’s a whole raft of things.”

Not lookng at M&A

“In relation to M&A, yes, I was very strident in my comments that we’re not looking at any major M&A. There are raft of things that, I don’t know, are on the market. These are a lot of the stress assets, and guess what, they distress for a reason. The high cost, the sorts of businesses that we are talking about earlier when we talk about and people needing to take the business of the market because it’s underwater, losing money.

If you look at the true opportunities for M&A, never say never, but these are few and far between if you’re really focusing on tier-1 low-cost opportunities. And unfortunately if one of those came on to the market and who knows when, that will be contested. So despite the fact that we’ve got a very strong balance sheet, it doesn’t automatically flow that we’re going to rush out and do it.”