Editorial: More pain, no gain

The week ended Oct. 4, the 40th trading week of 2008, was again characterized by global economic uncertainty stemming from the U. S. banking crisis. Miners and mineral explorers are now feeling the pain, too, in the form of tanking share prices, tightening credit markets and slumping commodities prices.

• The bloom quickly faded from the potash rose, as Potash Corp. of Saskatchewan took a dirt nap, dropping from $136.50 on Oct. 1 to $101 the next day — and well off its 52-week high of $246.29 achieved on June 18.

Shares of other potash companies big and small, such as Agrium, Potash One and Mosaic, all followed similar trading patterns.

The Oct. 2 rout seems to have been triggered by Merrill Lynch’s ratings downgrade of fertilizer producers from a “buy” to an “underperform.” It’s a little surprising that people are still putting weight in Merrill Lynch’s crystal-ball-gazing skills since its analysts couldn’t even foresee the company’s own downfall a few weeks ago.

Goldman Sachs also chimed in with a downgrade of Mosaic and a trimming of its price target by US$35 to US$115. All this, despite Mosaic turning in a stellar quarter that saw it more than double revenue to US$4.3 billion and more than triple profits to US$1.18 billion, or US$2.65 per share.

• There’s the old market observation that a company’s share price has usually peaked when it gets its name on a sports stadium or moves into a swanky new headquarters.

The latter seems to be the case with Canada’s premier diversified miner Teck Cominco, which has just relocated to splendid new offices a few blocks up Burrard Street in Vancouver. The stock, meanwhile, responded by closing the week at $23.08, down a gut-wrenching $10.49, or 31%, and more than half off the $50-mark achieved in mid-June.

Of note, the company is reorganizing itself into five commodity-based business units with the following unit leaders: copper, Roger Higgins; metallurgical coal, Boyd Payne; zinc, Michael Agg; gold, Rob Scott; and non-coal energy, Ray Reipas.

It’s also changing its name to just “Teck” and has unveiled a new logo, font and website at www.teck.com. Teck Corporation merged with Cominco Ltd. seven years ago, so presumably enough time has passed that folks from the Cominco side of the equation won’t have their noses put too much out of joint.

While the company will brand itself as simply “Teck” going forward, the company’s legal name will stay “Teck Cominco Limited” until the next annual meeting in April 2009, when it will be changed to “Teck Resources Limited.”

We like the change: it’s short and snappy, and matches the way people really speak of the company. It’s funny, though, that it wasn’t that long ago that Teck Cominco was contacting us to request that we stop calling the company Teck in our stories and instead use the full “Teck Cominco” name for every single reference.

• We’re starting to see the effects of the credit squeeze on miners, with acquisitions being abandoned after companies are unable or unwilling to finance their deal.

The biggie of the week, of course, was Xstrata’s walking away from its proposed US$10-billion acquisition of South African platinum producer Lonmin. In response, shares in Lonmin dropped 26% to 16.68 ($37.46) — or less than half the 33 ($74.12) bid price set by Xstrata. Ever the cagey strategist, Xstrata came right back and raised its stake in Lonmin to 24.9%, keeping out rival bidders.

Xstrata officially blames the tightening credit market for its decision to scupper the deal, but with Xstrata CEO Mick Davis’s superb money-raising skills, that may be overstating it. A softening platinum and palladium market related to a downturning U. S. auto market probably had much to do with the decision, too.

• To get an idea of the new lay of the land for juniors seeking financing, look no further than Avanti Mining’s deal this week. The company is relieved that it was able to raise $20 million from Denver, Colo.-based Resource Capital Fund IV for its Kitsault molybdenum mine project in northern B. C. But look closer at the interest rate: it’s getting into credit card territory at 15% per annum, and morphs into a convertible debenture if it’s not repaid by next July 15. Avanti also has to issue 3 million shares worth roughly $480,000 as an upfront “facility fee” and may have to issue another 3 million shares as a second facility fee.

It’s not as bad as going down to a bar on the wrong side of the tracks to borrow a little green from your local one-percenters, but it does show it’s a lender’s market right now in the minerals industry.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.