Metal producers worldwide are suspending production, slowing project construction or curbing their operations to critical activities as governments are imposing restrictions to contain the spread of coronavirus. These companies are also cutting non-essential travel of office employees to protect them against getting infected.
Coronavirus cases across the globe have escalated to 191,127, while the death toll stands at 7,807. To limit the spread, many countries have put in place travel or border restrictions and other measures such as constrained movement and quarantines. The Peruvian Government for instance, has closed its borders, declaring a state of national emergency requiring a 15-day quarantine. Peru is a global mining powerhouse — ranking third in global copper production, second for silver and sixth for gold and also boasts significant reserves of zinc, lead, iron ore and tin. The country’s mining ministry has allowed the mining sector to carry out critical operations during this period while maintaining safety, health and environmental conditions.
In the wake of this, Newmont Goldcorp Corporation NEM announced that it is ramping down mining operations at Yanacocha in Peru. However, gold production from leach pads, and management of critical safety and environmental activities will continue as usual. Yanacocha represents approximately 3% of the company’s 2020 attributable gold production outlook. Pan American Silver Corporation also announced that four of its mines (Shahuindo, La Arena, Huaron and Morococha) in Peru are being temporarily suspended.
Freeport-McMoRan Inc. FCX announced that Cerro Verde mine in Peru has been transitioned provisionally to a care and maintenance status for a 15-day period starting Mar 16. During this period, onsite workers will be limited to critical activities. Freeport has 53.56% stake at Cerro Verde. The mine produced 1 billion pounds of copper and 29 million pounds of molybdenum in 2019.
Anglo American plc is slowing construction work at its Quellaveco copper project in the country and only critical areas of the project are anticipated to continue as usual. However, Teck Resources Limited announced that it continues to operate the Antamina mine under an exemption from the announced Peruvian Government restrictions. Critical operations will be maintained by a reduced workforce throughout the 15-day national emergency quarantine period.
Meanwhile, neighboring country Chile declared a 90-day state of catastrophe, restricting freedom of movement. Teck Resources announced the suspension for an initial two-week period of construction activities at its Quebrada Blanca Phase 2 (QB2) project. The QB2 Project is one of the world’s largest undeveloped copper resources. Teck holds 60% of the project. Chilean copper miner Codelco stated it would reduce operations to comply with the imposed restrictions.
Other Parts of the World
Vale S.A VALE announced that it is placing its Voisey's Bay mining operation in Canada on care and maintenance for a period of four weeks. The move is a precaution measure to help protect the health and well-being of Nunatsiavut and Innu indigenous communities in Labrador, and its own staff due the fly-in nature and higher exposure to travel of the remote mining operation. Voisey's Bay produced 25.0kt of copper in concentrate in 2019. The decision also impacts Voisey's Bay Mine Expansion project currently underway to transition to underground operations.
Vale also informed that due to travel and equipment transportation restrictions, it is revisiting plans for the Mozambique coal processing plants stoppage. Notably, it was previously expected to commence operations in the second quarter of 2020. A new date is under evaluation, which could ultimately affect coal production guidance for 2020.
In Mongolia, Rio Tinto Plc’s RIO multi-billion underground project at the Oyu Tolgoi copper-gold site has been slowed due to the restrictions imposed by the Mongolian authorities. Lundin Mining Corporation announced that construction and commissioning activities directly related to the Zinc Expansion Project at the Neves-Corvo operation in Portugal have been temporarily suspended until further notice.
Coronavirus Causes Commodity Prices to Fall
The coronavirus outbreak has caused a meltdown in commodity prices particularly of copper, zinc and nickel. Given that China is a major consumer of base metals, the shutdowns in the country following the outbreak reduced demand for the same. This, in turn, hit the commodity markets hard.. Now with the coronavirus spreading rapidly across the globe, it is anticipated to substantially diminish global growth and demand for resources. This, in turn, will impact the mining industry. More production cuts and guidance revisions are in order if the situation does not stabilize soon.
The Zacks Mining - Non Ferrous industry has plunged 34.4% over the past year compared with the S&P 500’s decline of 11.7%. The industry falls under the broader Basic Material sector, which declined 28.5%.
The industry currently carries a Zacks Industry Rank #160, which places it at the bottom 37% of more than 250 Zacks industries. The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of the year, the industry’s earnings estimate for the current year has moved down 10%.
Even though metal prices remain subdued in the near term, the long-term prospects remain solid. The long-term outlook for copper is positive as the metal’s demand is expected to grow, driven by electric vehicles and renewable energy and infrastructure investments, However, grade decline, rising input costs, water constraints and scarcity of high-quality future development opportunities continue to constrain the industry’s supply. This demand supply imbalance will push copper prices north. Demand for nickel in electric vehicle batteries will continue to grow.
Investors interested in the industry can consider Southern Copper Corporation SCCO, which currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company has a long-term estimated earnings growth rate of 14.14%. The Zacks Estimate for current year’s earnings has gone up 4% over the past 60 days, indicating year-over-year growth of 10.4%.
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