It's getting kinda repetitive, isn't it? Coal demand is strong, companies that mine coal, such as Arch Coal (NYSE:ACI), Peabody (NYSE:BTU), and Rio Tinto (NYSE:RTP), are flush with cash, and miners are upgrading and/or expanding their equipment fleet by ordering from the likes of Joy Global (NASDAQ:JOYG).
Joy's third-quarter results boiled down to more of the same -- strong performance. Sales climbed 37%, operating income more than doubled, and cash flow climbed nicely. While new orders were up only about 3%, those figures were hurt by a large decline in roof support orders. Nevertheless, the demand for other types of equipment is still quite strong.
With strong demand in place, management is taking aim at some issues with capacity and the supply chain. New capacity will be coming online for the company's P&H surface mining equipment, and that should help alleviate the 12-month lead times for new equipment. On the supply chain side, management is working through higher prices. It's also looking to secure better supply reliability for important components like castings, fabrications, and bearings.
Instead of a sharp V-shaped spike, the boom for Joy Global is shaping up to be a bit more sustained. Not only are the coal markets hot, but so are the markets for iron ore, copper, and other surface-mined minerals. What's more, there's the oil sands angle, as well.
Oil sands operators are looking to increase their production, and that should spell stronger demand for shovels and trucks. It seems that wherever you look, there are mining capacity expansion projects around the world -- and those projects will require equipment from the likes of Joy Global, Bucyrus (NASDAQ:BUCY), and Caterpillar (NYSE:CAT) if they are to come to fruition. With Joy Global's stock already having done so well, it's still tough to recommend it. After all, I'm well aware of Warren Buffett's admonition against "cigar butt investing" -- that is, picking up stocks where there's just a little bit left in the story.
Truth is, I have no idea how long the upswing in demand for new mining equipment is going to last. I do believe that mining companies need to replace and augment their fleets, but I also know that the market works as a discounting mechanism. In other words, the market is going to look ahead to the peak (and inevitable decline) and sell off the shares before the financial results tell the tale. If history is any guide, the market will probably be wrong several times (resulting in brief sell-offs and rallies) before finally getting it right.
More mining missives:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
