9 January 2009
Americas Metals and Mining
LME Forecast Revisions +
4Q08E Previews; Alcoa to Sell
Jorge Beristain, CFA
Research Analyst
(1) 212 250 2723
jorge.beristain@db.com
Silvio Micheloto, CFA
Research Analyst
(1) 212 250 1653
silvio.micheloto@db.com
David S Martin
Research Analyst
(1) 212 250 5580
david.s.martin@db.com
Cutting LME forecasts and updating PT's; Alcoa cut to Sell
This is a compendium piece tying together current earnings revisions linked to
DB's updated LME metals forecast changes and providing full model revisions and
4Q08 previews for our coverage. Significantly lower aluminum forecasts and our
expectation of increased balance sheet strain lead us to cut our rating on Alcoa
from Hold to Sell. Slowing global growth will likely translate into (still) low prices
for industrial raw materials into 2009 leading us to retain a negative view on our
metals coverage.
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Top picks
Cliffs (CLF.N),USD28.80 Buy
Thompson Creek (TC.N),USD5.22 Buy
Companies featured
Alcoa (AA.N),USD11.36 Sell
2007A 2008E 2009E
EPS (USD) 2.94 0.43 -0.85
P/E (x) 12.4 26.7 –
EV/EBITDA (x) 8.7 6.0 47.8
Coeur d'Alene Mines (CDE.N),USD0.98 Sell
2007A 2008E 2009E
EPS (USD) 0.13 -0.03 0.08
P/E (x) 31.6 – 12.5
EV/EBITDA (x) 23.2 67.8 8.4
Cliffs (CLF.N),USD28.80 Buy
2007A 2008E 2009E
EPS (USD) 2.57 5.90 2.78
P/E (x) 14.6 4.9 10.4
EV/EBITDA (x) 8.7 2.4 4.0
Freeport-McMoRan (FCX.N),USD29.25 Hold
2007A 2008E 2009E
EPS (USD) 7.56 5.57 -1.74
P/E (x) 10.9 5.3 –
EV/EBITDA (x) 5.1 3.0 29.6
Grupo Mexico (GMEXICOB.MX),MXN9.70 Hold
2007A 2008E 2009E
EPS (USD) 0.22 0.19 0.02
P/E (x) 9.1 3.9 38.9
EV/EBITDA (x) 3.9 1.9 9.1
MMX (MMXM3.SA),BRL4.01 Sell
2007A 2008E 2009E
EPS (BRL) 2.51 -0.97 0.70
P/E (x) 10.4 – 5.7
EV/EBITDA (x) – 20.6 5.0
Southern Copper (PCU.N),USD17.54 Sell
2007A 2008E 2009E
EPS (USD) 2.56 1.97 0.04
P/E (x) 12.3 8.9 424.6
EV/EBITDA (x) 7.2 5.2 36.3
Vale (RIO.N),USD14.05 Hold
2007A 2008E 2009E
EPS (USD) 2.45 2.80 1.03
P/E (x) 10.1 5.0 13.6
EV/EBITDA (x) 8.3 3.8 8.3
Silver Standard (SSO.TO),CAD21.84 Hold
2007A 2008E 2009E
EPS (CAD) -0.49 0.07 0.72
P/E (x) – 308.6 30.5
EV/EBITDA (x) – – 20.0
Thompson Creek (TC.N),USD5.22 Buy
2007A 2008E 2009E
EPS (USD) 1.24 1.83 0.29
P/E (x) 12.7 2.9 18.1
EV/EBITDA (x) 6.8 1.1 5.1
Global Markets Research Company
Near-term earnings less than zero, while 2009 forecasts remain too high
For 4Q08 we expect at least half our coverage sample to report EPS of less than
zero without factoring one-time charges. While difficult to forecast, one-offs
should originate from wrong-way FX hedges, recent facility closures/lay-offs and
inventory write-downs which are likely to mar results of companies projected to
report positive earnings. For 2009 we are one of a few analysts expecting reported
losses for bellwethers Alcoa and FCX, implying further room for downward street
revisions. For 2010 our EPS estimates are ~24% lower than consensus.
Earnings visibility is low and lack of catalysts lead us to remain cautious
We now find that an average company in DB Americas coverage universe is
trading at 10.5x 2009E P/E and 17.3x 2009E EV/EBITDA. Given lack of near-term
earnings visibility for most stocks (compounded by write-downs and other
charges), the potential for sharp balance sheet deterioration for some higher-cost
players (ie, Alcoa, FCX) and lack of expected catalysts (ie, m&a, share buybacks,
volume growth) we believe the risk-reward of the Americas metals & mining
sector remains uncompelling at this time.
Price Targets increasingly moving to a DCF-basis as earnings evaporate
Under a low metals scenario much of our coverage could post negative/distressed
earnings until 2010 rendering our preferred methodology of P/E based PT less
workable. As a result we have switched to DCF-based PT’s where P/E’s have
become unworkable, while trying to maintain a uniform valuation methodology.
After numerous PT changes over the past few months, we also believe DCFbased
NPV’s per share PT’s offer the benefit of fluctuating less as commodity
curves flatten out (now the case) and despite near-term reported EPS losses
should still provide a meaningful math-based valuation metric.
Valuation wrap
In line with our negative view on the sector we now rate 40% of our coverage as
Sell, 40% as Holds and only retain Buys on 2 stocks which we consider to retain
balance sheet-defensive characteristics. Against low projected earnings, our
valuation targets remain conservative in an 8-11x P/E range and P/NPV multiples of
0.7-0.8x which compares with 9-12x P/E and 1.0-1.3x P/NPV seen during the
sector’s 2008 summer peak. Key risks include changes to metal prices, currency,
M&A valuation and integration (see individual Investment Thesis sections for
company-specific details on valuation and risks). This report changes ratings,
price targets, and estimates for several companies under coverage. For a
detailed listing of these changes see page 3.

Table of Contents
Executive summary ........................................................................... 3
Alcoa ................................................................................................... 9
Cliffs Natural Resources.................................................................. 14
Coeur d’Alene Mines ....................................................................... 18
Freeport-McMoRan ......................................................................... 22
Grupo Mexico .................................................................................. 26
MMX................................................................................................. 30
Silver Standard ................................................................................ 34
Southern Copper ............................................................................. 38
Thompson Creek.............................................................................. 42
Vale ................................................................................................... 46