Joy Global CEO: No End to Mining Boom in Sight

Joy Global CEO: No End to Mining Boom in Sight

Joy Global Inc., a maker of giant drills and shovels, said its mining customers could take a “significant” drop in the prices of coal, copper and other commodities without cutting back on their output, according to Chief Executive John Nils Hanson.

Underlining that optimism, the company said it’s boosting output of its high-priced shovels by 40 percent, even as speculation mounts that the three-year boom in metals and energy prices may have finished.

“These commodity prices can come off to a significant extent, and we’ll still see the same kind of growth in our underlying markets,” Hanson said in an interview this week.

He said prices could fall by “10 percent to 30 percent” without prompting Joy Global’s customers to retreat from projects to expand mines and buy and refurbish its huge electric shovels and drills, which carry wait lists of 12 to 18 months.

The company is bumping up output of its electric rope shovels to 24 a year from 17 currently. These machines cost $13 million to $17 million and last about 20 years.

Mining customers “see a very long cycle of continued increases in commodity demand,” Hanson said. One, for instance, is considering building a 100-year mine that won’t produce until five years after they start digging.

Even if commodity prices drop by a third, they “would still be high enough to allow them to reinvest, and that’s the key,” said Hanson, who plans to retire from the Milwaukee company in January.

His theory is being tested daily in the futures trading pits, where investors have been selling off contracts to buy precious and industrial metals on fears that slower economic growth means dwindling demand for raw materials.

Gold futures have lost 20 percent from a May 12 high, while copper futures have fallen 16 percent. Joy Global’s stock peaked a few weeks earlier, at $72.73 on April 21; the stock has fallen significantly since then and traded recently at $33.33 on the Nasdaq Stock Market.

Meanwhile, rival Bucyrus International Inc. has lost about 35 percent since its peak May 11, trading recently at $40.18 on the Nasdaq.

Wall Street’s recent distaste for these mining-related stocks has mirrored investors’ retreat from once high-flying commodities into sectors such as consumer goods and technology.

Commodities “went up on exuberance perhaps because of a flight out of equities, and now other markets are perking up,” said Ron Lawson, managing director of Lawson/O’Neill Global Institutional Commodity Advisors LLC.

Regardless of demand for metals, such broad-based shifts in the market can drag down equities.

“You had a lot of people piling into the stock as a commodity play and when (commodities) turned south, people got out of it,” said Charles Brady, a stock analyst at BMO Capital Markets who calls the company’s business prospects “extremely solid.”

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