commodity

The price of gold hit a peak a little more than two years ago, in August 2011, at around $1,900 an ounce. It has generally been falling ever since. It fell below $1,200 in July, and is now around $1,300. If you had that kind of movement in a broad stock market average, you might say that now is a good time to consider if that market has come down into buying territory. You might wonder if prices were ready to reverse course and resume a long-term rise. However, if you try to make that kind of assumption with gold, you have a lot less information to work with. After all, stocks have a relationship with various measures of value such as earnings, dividends, sales and so on. The history of these relationships ranges widely, but they still give you a basis for comparison. Not so for gold. It doesn’t produce any sales, revenue or earnings. In fact, it consumes rather than produces income, because you have to pay to insure and store it. Unlike stocks which represent a share in a profit-seeking enterprise, gold is a commodity, and a highly specialized one at that....

Royal Canadian Mint Gold Reserves Exchange Traded Receipts (ETRs), $14.00, symbol MNT on Toronto (Receipts outstanding: 30.9 million; Market cap: $455.5 million; www.reserves.mint.ca), are receipts issued by the Royal Canadian Mint (the Crown corporation responsible for the minting and distribution of Canada’s circulation coins) that let investors own gold bullion stored in the Mint’s vaults. The value of these ETRs varies with the price of gold. Investors can trade their ETRs on the stock exchange, or once a month they can redeem them for gold coins or bullion with a minimum purity of 99.99%. This requires a minimum of 10,000 ETRs plus redemption and fabrication fees for the gold coins or bars. Instead of physical gold, investors can choose to redeem their units for cash equal to 95% of the lesser of: a) the ETR price on the redemption date; or b) the volume-weighted average price of the ETRs for five trading days prior to and including the redemption date....

Lundin Mining, $4.66, symbol LUN on Toronto (Shares outstanding: 584.2 million; Market cap: $2.7 billion; www.lundinmining.com), is a diversified Canadian base metal mining company with operations in Portugal, Sweden and Spain. It also has a project under development in the U.S. that will produce copper, zinc, lead and nickel. In addition, Lundin owns a 24% stake in the Tenke Fungurume copper/cobalt mine in the Democratic Republic of Congo, as well as 24% of Freeport Cobalt Oy, which owns a cobalt refinery in Kokkola, Finland. In the three months ended June 30, 2013, Lundin Mining’s revenue rose 2.3%, to $176.3 million from $172.3 million a year earlier (all figures except share price and market cap in U.S. dollars). Earnings per share fell sharply, to $0.03 from $0.08, as higher costs offset increased production....

FINNING INTERNATIONAL INC. $22 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.9 million; Market cap: $3.8 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.finning.com) sells and services heavy equipment made by U.S.-based Caterpillar Inc. (New York symbol CAT). Its main customers are in the oil, mining, forest products and construction industries.

Lower prices for copper and other commodities are prompting mining companies to cut back on equipment purchases. As a result, Finning’s revenue fell 8.2% in the three months ended June 30, 2013, to $1.6 billion from $1.8 billion a year earlier. Flooding in Alberta also delayed some deliveries. However, demand remains strong in South America. Earnings fell 2.2%, to $0.45 a share from $0.46.

The company’s long-term prospects remain bright. Weak commodity prices will probably prompt Finning’s clients to make their current gear last longer. That should spur demand for its repair and maintenance services, which now supply 50% of its revenue. Finning also earns higher profit margins from services than selling new equipment.
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Learning what not to do can be the hardest and costliest part of an investor’s education. Recently I got in a conversation about investing with a 35-year-old engineer. Like a lot of engineers, he was interested in technical analysis—the practice of trying to figure out what a stock or the market will do next by studying trading patterns and history. He asked what I thought of the technical approach. I told him I was quite interested in that subject when I got my first job in investing, at age 16. But I explained that the more time I spent on technical analysis, the more limited it seemed. I still look at stock price charts every day, and always before buying, selling or recommending any stock. A stock chart carries a lot of information. But I see charts as just one of many things you can use that can give you a little more insight into a stock’s history and outlook....

J.C. PENNEY CO. INC., $13.50, New York symbol JCP, operates more than 1,100 department stores in the U.S. and Puerto Rico. Over a year ago, the company switched to an everyday low prices strategy. It felt the move would entice shoppers to come into its stores more often and not wait for clearance sales. However, the plan alienated Penney’s regular customers. In response to a sharp drop in its sales, the company switched back to its original marketing strategy....

SHERRITT INTERNATIONAL $3.70 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 296.9 million; Market cap: $1.1 billion; Dividend yield: 4.7%) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas....

IMPERIAL OIL LTD. $42 (Toronto symbol IMO; Conservative Growth Portfolio; Resources sector; Shares outstanding: 848.0 million; Market cap: $35.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) has teamed up with its parent company, ExxonMobil Corp....

SHERRITT INTERNATIONAL $3.70 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 296.9 million; Market cap: $1.1 billion; Dividend yield: 4.7%) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 356 megawatts of power generation capacity in Cuba, with an additional 150 megawatts starting up this year.

The company is a major nickel producer, with operations in Cuba and Canada. As well, it has started up its 40%-owned Ambatovy mine on the island nation of Madagascar, off Africa’s east coast. Sherritt also produces oil and gas in Cuba, Spain and Pakistan and is Canada’s largest thermal coal producer.

In the three months ended June 30, 2013, Sherritt’s revenue fell 10.2%, to $338.5 million from $377.1 million a year earlier. Lower nickel, cobalt and coal prices were the main reasons for the drop. Cash flow per share declined 10.0%, to $0.18 from $0.20.
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CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors. These companies create sulphur, acid and other by-products as part of their activities. Chemtrade converts these substances into useful chemicals, like sulphuric acid. Chemtrade’s Marsulex subsidiary provides a range of environmental services, including improving air quality and treating and handling industrial waste....