S&P Notes Recovery for NA Miners


"Trend is in step with 'sluggish' economic growth."

During the next year or so, Standard & Poor's analysts expect the credit quality of most North American metals and mining companies to improve, albeit slowly.

This trend is in step with what S&P analysts expect to be sluggish economic growth.

Nonetheless, S&P noted results for mining companies, such as Freeport-McMoRan Copper & Gold, Teck Resources and Cliffs Natural Resources have improved markedly this year.

Meanwhile, base metals and steel have been recovering at different paces, while gold continues to benefit from overall global economic uncertainty.

In an analysis published Wednesday, S&P analysts outlined several key factors which have, or potentially could have, a significant impact on the North American metals and mining sector including:
  • Economic growth. Standard & Poor's base case U.S. GDP forecast is for 2.6% growth in 2010 and 2.4% in 2011.
  • Demand from China.
  • Producer discipline.
  • Liquidity/cash flow.
  • M&A activity. "We would expect further M&A across the metals and mining sector as a whole, as confidence returns, since the various factors that fueled M&A for many companies before the recession persist, namely the need to replace reserves, lower costs, enlarge their geographical footprint, enhance product offerings, and expand the size and scope of operations," S&P said.
S&P said its outlook for base metals producers is also mixed. Aside from China, end markets remain In their analysis, S&P noted, "Gold continues to be a bright spot and credit profiles for producers are strong." The analysts predicted that gold prices could remain above $1,000 "for quite some time as economic recovery falters in western economies."

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