A workman checks zinc bars ready for dispatch at Xstrata’s San Juan de Nieva refinery in Spain in this file photo.
Globe editors have posted this research report with permission of Dundee Capital Markets. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here. The following is excerpted from the report:
Restructuring is "in" this week: This week has been a big one for the major base metals players, with three of the biggest names announcing major re-structuring plans. The week kicked off with Anglo American (AAL-LON, Not Covered) cutting their dividend and announcing plans to cut 85,000 employees and sell up to 35 of their operations. This was followed by Freeport-McMoRan (FCX-NYSE, Not Covered) on Tuesday morning when they announced the suspension of their $0.20/sh dividend and shutdown of their Sierrita mine, while highlighting that they are evaluating options including the sale of minority interests in some assets in order to further reduce debt. Finally, Glencore (GLEN-LON, Not Covered) increased their targeted net debt reduction by almost $3B and cut capex guidance by $1.2B in 2016. GLEN is also looking at asset sales and streaming deals.
What about our universe? Stick to names that are well positioned to ride out the storm (and won't need to re-structure).
These kinds of restructuring efforts from the majors do not come as a surprise, and we expect to see many more of the big players to follow suit moving forward. The key here is to look for the companies who are already well positioned to ride out the weak commodity environment, and won't need to undergo any major restructuring. We are looking for low-cost producers with clean balance sheets and strong operating teams. In terms of commodities, we prefer Zinc and Lead over Copper and Nickel. We remain extremely bearish on coking coal.
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