Some Metal/Mining Stocks Taking a Hit This Morning

Titanium Metals (TIE) a previous fund holding is down 9% early this AM on a pretty serious miss on earnings. For earlier posts about Titanium Metals click on the tag at the bottom of this entry.

Cleveland Cliffs (CLF) an iron ore maker - is down about 5% on a miss as well. Considering the size of the miss ($1.08 vs analysts $1.51!), the stock is not down that much, showing investors still like the story.

I have been underweight this sector, mostly due to the feeling if a global slowdown occurs it will hit metals more than say agriculture or infrastructure. Also there are some rising costs hitting these companies, but they have been more than able to offset that by much higher base metal pricing.

Further, pricing for iron is set on 1 year contracts so there is some serious visibility in certain areas. I have been considering adding one of the "big 3" trio of BHP Billiton (BHP), CVRD (RIO), or Rio Tinto (RTP) - still mulling; these stocks have had huge runs and I am hoping for more pullback. My only real exposure to this space is Freeport McMoran Copper & Gold (FCX), which is mostly a copper play. A recent article on CVRD shows the positive drivers still driving the stock, and most of the sector

• Brazil's Companhia Vale do Rio Doce (CVRD) (RIO, the world's No 2 mining group measured by market value, posted revenues of $8.1bn for the third quarter of 2007, $732m higher than the corresponding period of 2006. The figure for the latest quarter was, however, $775m lower than the second quarter of 2007, on a sharp (and well known) decline in revenue from nickel sales.
• The revenue decline from CVRD's nickel division was substantial, at $1.2bn in the third quarter of 2007, measured against the second quarter of this year. Nickel prices staged a huge spike to nearly $25/lb in May, and subsequently corrected by a half. The metal is currently trading around $14.27/lb.
• The heavy decline in revenue from nickel was partially mitigated by a $313m gain from iron ore sales during the third quarter of this year. CVRD's net earnings for the first nine months of 2007 came in at $9.9bn, 77% higher than the $5.6bn recorded for the first nine months of 2006.
• The stock price has risen by nearly 200% over the period, as investors have continued to factor in, in particular, recognition of CVRD as the world's biggest producer of seaborne iron ore. CVRD's position in this market gives it considerable clout in influencing global prices for the variants of iron ore, mainly fines and pellets.
• Ferrous metals, including iron ore, comprised 51% of the revenue line in CVRD's third quarter 2007, followed by 35% from non-ferrous metals, where nickel remained by far the most significant contributor. The group is also an important producer of copper and aluminum.

Long Freeport McMoran Copper & Gold in fund; no personal position