Metals and mining companies have had a tough go of it in recent times. Year to date as of March 8, the industry has fallen 5.98% while the S&P 500 has risen 8.28%. Its performance stands only above the "Computers & Peripherals" industry as the worst performer of 2013.
Since these mining companies provide the foundation of so many of our individual purchases, I find it valuable to hear what they have to say regarding the future. That's why I turned to five key players from across the mining industry to find out how their CEOs feel about 2013 and beyond. Let's look at what some of them had to say on recent conference calls.
Most of you probably heard that Cliffs Natural Resources (NYSE: CLF ) took a big hit after its latest release. During the company's earnings call, Chairman, CEO, and President Joe Carrabba responded to questions on the company's decision to cut its dividend and dilute equity in the last quarter of 2012. He said recent pricing volatility weighed heavily on the entire sector but that Cliffs' move was just "half a step back" so that it can take advantage of its bullishness on the future. He also looked positively on China in 2013, though he expressed some hesitation about the North American market, stemming from an increase in imports from other countries, causing an oversupply.
We believe that the highest year-over-year imports, coupled with declining iron ore stockpiles at the Chinese ports, will support healthy iron ore pricing. We also expect to see mid-single-digit increases in China's crude steel production over the next few years. For the U.S., we anticipate modest growth in 2013. We have seen a recent uptick in the North American steel-making utilization rate, which is currently running at 75%.
Transitioning from coal and iron ore to a much brighter metal -- copper -- leads to a slightly better picture at Freeport McMoRan Copper & Gold (NYSE: FCX ) . What President and CEO Richard Adkerson had to say held promise for copper's future in nearly every major market not located in Europe.
And in today's world, we are seeing in our business some degree of improvements, in markets in the United States, in the Middle East. China shows promise this year for renewed growth as they spend, as China spends on infrastructure and takes steps to improve its economy. Construction in the U.S. is growing. Automobiles have been strong, and the outlook is for continued strength. There's investments being made by power companies to invest in the grid. There's some short-term effect from the damage caused by Hurricane Sandy. And overall in the U.S., our business and our customers are talking to us about an environment of not significant, but moderate, growth.
The two companies we've looked at are slightly more niche businesses when compared with diversified Brazilian giant Vale (NYSE: VALE ) . Looking at Vale can provide a glimpse into nearly every mining segment in the business, from fertilizer components to aluminum and nickel. CEO Murilo Ferreira's view of the metals and minerals market is improving after a tumultuous 2012, but he warns that capital spending must be approached with much more caution these days because of the overhang of uncertainty regarding global growth.
"Discipline and capital allocation is highly mandatory, involving, primarily, the focus on world-class assets," Ferreira said. "As a consequence, you see a smaller portfolio of projects but with great potential to produce high returns on invested capital."
Now, on to a metal that relies on investors for its success just as much as, or more than, on its consumer end market demand: gold. Barrick Gold (NYSE: ABX ) is the leading gold company in the world and one whose investors experienced a pretty bumpy ride over the past 52 weeks, losing 38.75% of their investment as of March 7. While President and CEO Jamie Sokalsky didn't provide much of an update on the market, he did highlight the direction his company, and the gold industry in general, must take moving forward. His outlook will certainly have an impact on the spending habits of Barrick and its competitors and, in turn, have a positive effect on equity values.
I have repeated it many times over the last three quarters and again many times throughout this presentation: Production will drive returns, not the other way around. Investors have been dissatisfied with capital allocation decisions in our industry. And that is clearly reflected in the gold equity valuations. They will no longer reward production growth just for production's sake to the same extent as in the past. They are looking for higher rates of return and free cash flow, and not just production growth -- and, ultimately, a greater return of capital to them.
For the most in-depth outlook, turn to Alcoa (NYSE: AA ) CEO Klaus Kleinfeld. During the company's conference call, he dove down into specific industries' growth prospects that he believes will provide increased demand for his company's aluminum supply. From his perspective, increased demand will stem from the aerospace, U.S. and Chinese automotive, Chinese truck and trailer, and commercial building and construction markets. He's hoping for 7% growth at Alcoa, which is a little more than the 6% the company experienced in 2012 and closes in on its average of 8% per year.
Based on these five outlooks, the future does appear slightly more luminous for those invested in metal miners. From this macro perspective, it still remains each investor's duty to determine the best company in each respective sector. While I'm not attempting to break that argument down, I think what these CEOs had to say does shed positive light on the industry. Take these thoughts into consideration when evaluating your portfolio and potential watchlist companies that you might want to add.
And as always, Fool on!
Copper and gold stocks could be undervalued. Is FCX the best of both worlds?
After putting together a blockbuster deal to expand into the oil and natural gas industry, Freeport-McMoRan will have plenty on its plate as it tries to adapt to the new industry, as expanding into oil and gas carries plenty of inherent volatility. FCX had a profitable copper business, and on top of this foray into a new industry it still has to contend with mining industry bellwether BHP Billiton. To help investors determine whether Freeport-McMoRan is a buy or a sell, we've compiled a brand-new premium report on the company! Click here now to gain instant access!