The Ultimate Commodity Update
Hi Fools. It's time again for the most succint and insightful assessment of global commodity supply and demand dynamics from the Oracle of Milwaukee: Joy Global.
There are several other important topics to discuss today as well, so please read on.
First, excerpts from the Joy Global piece:
Reinforcing the company's prior bullish assessments of looming long-term growth in global demand for products like iron ore, coal, and copper, Joy Global speaks of "a multi-year expansion ahead that will become the second leg of a long growth period for mining." The characterization seems a fair one, as only now are we really starting to see capital expenditures for new mine capacity gearing up in earnest following a severe and disruptive contraction that accompanied the massive commodity correction of 2008 and 2009. Highlighted by some gargantuan individual efforts like Rio Tinto's (NYSE: RIO) planned $13 billion in CAPEX, Joy Global sees its customers collectively increasing CAPEX by 20% during 2011, following a 30% surge in 2010. Lest Fools interpret this trend as signal of a future supply glut, Joy Global documents the array of long-term demand drivers slated to absorb the supply, and rightly points out the following with respect to iron ore in particular:
The major seaborne iron ore producers have plans to increase production by more than 50 percent, but markets should remain tight for the next several years as these expansions will take 5 to 6 years to complete.
Playing music to the ears of Fools who may have dug for copper exposure after I discussed the red metal's bullish outlook last December, Joy Global adds:
Global copper demand was in excess of supply in 2010 and the annual deficit is expected to grow to around 500 million tonnes in 2011. Copper has the longest lead time and highest risk associated with new green field capacity, and this adds support for copper prices. Today's prices of $4.50 per pound are expected to top $5.00 later this year.
Inserting similarly favorable forecasts for both metallurgical and thermal coal demand, Joy Global continues to depict as solid a landscape for mining investors as one could hope for. I believe that Fools opting for baskets of sector-targeted equity exposure through vehicles like the Market Vectors Coal ETF (NYSE: KOL) or the Global X Copper Miners ETF (NYSE: COPX) are likely to outperform the major indices over the next several years, and I consider profitable exporters like Teck Resources (NYSE: TCK) primed to deliver excellent shareholder returns over a similar timeframe.
Also, did you happen to catch "Endeavor to Catch This Runaway Silver Stock"?
Fools seeking to add silver exposure amid silver's momentous ascent may wish to seek relative peace of mind by targeting companies with aggressive growth profiles that erect a foundation of shareholder value beneath these share-price advances. Silver Wheaton, which is targeting 80% production growth over the next five years, offers one prime example. Endeavour Silver (AMEX: EXK), whose stock has advanced more than 150% since I asked Fools to pinpoint a major growth spurt last August, continues to entice shareholders with multiple avenues for growth looking forward.
Following exciting exploration success during 2010, Endeavour has opted to expand capacity at its Guanajuato processing plant by 67%, from 600 to 1,000 tons per day. The company expects to boost production by 12% in 2011 to reach 4.7 million ounces of silver equivalent (including gold), and sees operating profit margin surpassing $18 for each of those ounces (even using a decidedly conservative silver price forecast of $24 per ounce).
This week, the company released a new resource estimate for its most advanced exploration project: the Parral project in Chihuahua State, Mexico. With an indicated resource fast approaching 4 million ounces of recoverable silver equivalent, Parral's prospects are shaping up nicely, and the company will now commission a preliminary economic analysis to help guide future efforts.
Interestingly, Endeavour has also taken on a consultant "to identify and evaluate potential mergers and acquisition opportunities to facilitate Endeavour's future growth." Atop the strength of Endeavour's proven management team, which managed to avoid shareholder dilution effectively through previous rounds of growth, Endeavour's multitiered commitment to generating accretive growth renders this small-cap miner one truly enticing choice of vehicles for riding the silver rocket.
From earlier this week, here is my coverage of CDE's earnings:
And here is my discussion of the heavy favorites for growth in gold, including a handy data table.
Yamana Gold (NYSE: AUY), meanwhile, remains the uniquely undervalued gem of the golden growth world, and an updated reserve asset valuation at just 26% of fair market value supports this claim. Although I do maintain far greater confidence that the management of Goldcorp and Agnico-Eagle will execute cleanly on theirindustry-leading cost profile and proven organic reserve growth potential warrant a reserve-asset valuation far closer to those of their low-cost peers with similar growth outlooks. Goldcorp earns my nod for the highest-quality, lowest-risk play of the bunch, while Yamana remains the crystal-clear, deep bargain of the group. targeted growth spurts, I maintain that Yamana's
I have more to add, but I will do so gradually within comments. Please keep checking back here if you're interested.