Costs down, shares up for FNX

Cost cutting was the key to FNX Mining’s (FNX-T) second quarter success.

The Toronto-based copper and nickel miner managed to increase its second quarter profit by 11% from the same period last year an up its earnings per share to 14¢ per share compared to 13¢ for last year’s second quarter.

Like many company’s reporting better than expected earnings this season FNX made those gains on the back of cost savings, and it remains to be seen if it can find more areas of savings in the third quarter.

One figure that could raise red flags was a dramatic drop in revenue. FNX reported that revenue fell 45% to $61.9 million. Much of that was due to a labour dispute at one of its key processing facilities in Sudbury.

Still, revenue and earnings were higher than the Street’s expectations which had pegged revenues at $43.9 million and earnings at just 2¢ a share, according to Reuters estimates.

Beating expectations had a positive effect on the company’s shares price as midday in Toronto on Aug. 14 FNX shares were up 5% or 43¢ on just over a million shares traded. The company has 87 million shares outstanding.

The company credited its ability to cut cost to its early and “decisive actions” with regards to optimizing its operations. It said strict controls on capital, operating and corporate expenditures also played a key part.

On the more challenging side of things, FNX continues to look for a way to process its ore.

The company had been relying on a Vale Inco (RIO-N) owned processor, but labour disputes there have prolonged a shutdown, leaving FNX with little choice but to stockpile ore.

All ore shipments to the processor were stopped at the end of May and 120,000 tonnes of ore from its Podolsky and McCreedy West Mines has been stockpiled.

FNX says it has enough working capital to keep stockpiling production into 2010, if required.

In the near term, however, the company announced a deal with Xstrata (XSRAF-O, XTA-L) that will allow FNX to mill up to 150,000 tonnes of its stockpiled ore at Xstrata’s Strathcona mill. The terms of the deal are confidential.

If the labour dispute between Vale and the union is not resolved FNX said it will try to extend its agreement with Xstrata.