Tuesday, January 10, 2006
Phelps Dodge Bets Against Itself
While not a precious metals producer, one mining stock felt burned by betting against the price of what it produces. "Shares of Phelps Dodge Corp. continued their slow recovery from a sharp pullback Tuesday but remained lower as the copper mining giant slashed its profit outlook for the fourth quarter. The shares plunged as much as 10.7% in early dealings, falling to $138. On heavy New York Stock Exchange volume, Phelps Dodge recovered to end at $146.58, down 5.2%."
"Quarterly charges would jump to $2.05 a share from 23 cents, reflecting in part what the company called 'higher copper prices for the period, associated adverse accounting effects of the company's 2005-2007 copper price-protection programs, and production and sales shortfalls of copper and molybdenum.'"
"The Phoenix-based company cited one-time charges as the principal factor behind reducing its fourth-quarter earnings to a range of $1 to $1.30 a share, down from a previous estimate of $4.15 to $4.40 a share."
"Phelps Dodge also said its total cash balance at the end of 2005 stood at about $1.9 billion, or $400 million less than management had forecast at the end of October. The company said it contributed $200 million to recently established trusts for post-retirement medical and life-insurance benefit obligations as well as $100 million to a recently established trust for environmental reclamation and remediation obligations."
"Reflecting record price gains for copper, Phelps Dodge stock more than doubled from its 52-week low of $78.20 set last May, setting a 52-week high of $156.90 on Monday."
"Phelps Dodge Corporation engages in the production of copper, molybdenum, molybdenum-based chemicals, and continuous-cast copper rod primarily in the United States."
"Quarterly charges would jump to $2.05 a share from 23 cents, reflecting in part what the company called 'higher copper prices for the period, associated adverse accounting effects of the company's 2005-2007 copper price-protection programs, and production and sales shortfalls of copper and molybdenum.'"
"The Phoenix-based company cited one-time charges as the principal factor behind reducing its fourth-quarter earnings to a range of $1 to $1.30 a share, down from a previous estimate of $4.15 to $4.40 a share."
"Phelps Dodge also said its total cash balance at the end of 2005 stood at about $1.9 billion, or $400 million less than management had forecast at the end of October. The company said it contributed $200 million to recently established trusts for post-retirement medical and life-insurance benefit obligations as well as $100 million to a recently established trust for environmental reclamation and remediation obligations."
"Reflecting record price gains for copper, Phelps Dodge stock more than doubled from its 52-week low of $78.20 set last May, setting a 52-week high of $156.90 on Monday."
"Phelps Dodge Corporation engages in the production of copper, molybdenum, molybdenum-based chemicals, and continuous-cast copper rod primarily in the United States."
# posted by Ben Jones @ 1:16 PM 
Comments:
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'Quarterly charges would jump to $2.05 a share from 23 cents, reflecting in part what the company called 'higher copper prices for the period, associated adverse accounting effects of the company's 2005-2007 copper price-protection programs'
This is why one must be very careful about mining stocks. In spite of higher prices for copper, the 'price protection program' is likely forward selling. This is a very common practice with gold and silver miners. If they have a big enough position, your gold stock may actually be a bet against higher gold!
The big drop in the cash balance shows this isn't an 'accounting' issue.
This is why one must be very careful about mining stocks. In spite of higher prices for copper, the 'price protection program' is likely forward selling. This is a very common practice with gold and silver miners. If they have a big enough position, your gold stock may actually be a bet against higher gold!
The big drop in the cash balance shows this isn't an 'accounting' issue.
That's a really interesting/scary point. As well as being heavily invested in gold, I'm invested in some very promising small mining operations (Minera Andes / MNEAF for one). The thought of forward selling obviously changes the equation from one of speculation & gold-price risks to one of management.
Any insight into how one does DD on this?
Any insight into how one does DD on this?
sohonyc,
There are plenty of subcription services that follow this. Personally, I would do it myself. Go over the financials and corporate press releases. This can change from month to month.
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There are plenty of subcription services that follow this. Personally, I would do it myself. Go over the financials and corporate press releases. This can change from month to month.
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