The Dow Jones Industrial Average surged 119 points on Friday after a Federal Reserve president said the markets can expect the committee to continue its easy money policies for a very “long time.” Perhaps it’s not losing its appetite for quantitative easing as it seemed. As the three following companies show, the economy, while better than it was, still remains weak, and that’s why the Fed is likely to let it keep its QE crutch.
These three companies were some of the more notable ones heading in the opposite direction of the index, so let’s see if they have a chance of walking on their own again.
| Company | % Change |
| Frontline (NYSE:FRO) | (13.4%) |
| North American Palladium (NYSEAMEX:PAL) | (7.5%) |
| Century Aluminum (NASDAQ:CENX) | (6.9%) |
Of course, don’t go running over the cliff with them like a bunch of lemmings: it could just be a temporary situation. Let’s first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.
Drowning in a sea of trouble
The tempest-toss’d shipping industry may yet swamp tanker operator Frontline Ltd. (NYSE:FRO) after it reported fourth-quarter results indicating that it’s running into a squall with its bond payments. The shipper said if it couldn’t raise additional equity or wasn’t able to sell additional assets, it might not have enough cash to repay its $225 million convertible bond loan that’s due in April 2015. They’ve been terminating and redelivering ships not related to their core operations to remain afloat, but thinning its fleet further may not leave enough to fully function properly.
I’ve doubted before that Frontline Ltd. (NYSE:FRO) will make it to safe harbor, and as its shares tank further it seems the market agrees, too. The rates they’re earning on their VLCCs are practically nonexistent. The tanker operator said it took it and other carriers six months to push time charter rates up to the $20,000- to $25,000-per-day level, and then in a matter of weeks in 2013 it all fell apart. Rates have tanked to just $5,000 per day as the build rate continues to drown the industry in excess capacity. The only sliver of hope shippers have is this is the last year of high growth build rates, but we’ll probably see more shipper in Davy Jones’ locker before it’s all over.
Higher costs, lower prices
Palladium miner North American Palladium Ltd (NYSEAMEX:PAL) also reported quarterly results that weren’t what the market wanted to hear. While it’s counting on the expansion of its Lac des Iles mine in Quebec later this year to be the move that carries it into the future, getting there is proving bumpy. It expects the mine to be fully operational by the end of the third quarter and anticipates its cash costs to be in a range between $375 and $425 an ounce. First-quarter cash costs proved to be $401 per ounce, but NAP provided second- and third-quarter guidance that showed them spiking to around $600. With palladium prices falling again and now down to $737 per ounce, it’s getting to the point where it may be uneconomical to advance.
NAP reminds us that the quarterly results can be variable, but it’s taking longer to get up and running than anticipated, which is something the market never likes to hear. As one of only two primary palladium mines, North American Palladium Ltd (NYSEAMEX:PAL) ought to have a lock on its position, but its troubles are depressing its share price, and that puts it at risk of becoming a potential takeover target.
