Freeport-McMoRan: Recent Results Indicate Weakness

Freeport-McMoRan (FCX) recently announced third-quarter revenue of $3.7 billion, down 35.4 percent from $5.7 billion in the third quarter of 2014. Freeport-McMoRan also declared a net loss linked to the common stock of $3.8 billion or $3.58 per share as compared to a net income related to common stock of $552 million or $0.53 per share during the same period last year.

The key resource mining company reported continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, putting downward pressure on the company’s margins.

What next? 

Going forward, Freeport-McMoRan expects to grow its copper sales profile by 27% from 4.1 billion lbs in 2015e to 5.2 billion lbs in 2016e.
It forecasts to reduce the unit net cash cost profile by 24% to $1.15 per lb in 2016e from $1.52 per lb in 2015e. In addition, the company expects to curtail its overall capital expenditures by 37% to $4.0 billion in 2016e from $6.3 billion in 2015e coupled with a significant 106% growth in the consolidated cash flows for 2016e at $6.8 billion, compared to just $3.3 billion in 2015e.

Freeport-McMoRan also focused on year-over-year reduction in the company’s consolidated capital expenditures including, total mining and oil & gas to nearly $4.0 billion in 2017e from a notable $7.2 billion in 2014.

Moving ahead, Freeport-McMoRan is keen on optimizing the mining operations by decelerating its core mining activities given a disappointingly low global commodity pricing trend and weaker recovery of international demand in order to minimize losses and curtail expenditures.

Going forward, Freeport-McMoRan has provided the operational outlook for the rest of 2015 and estimates copper, gold, molybdenum and oil equivalents sales of 4.1 billion lbs., 1.2 million ozs., 90 million lbs. and 52.7 MMBOE (approximately 67% oil) respectively. Copper is believed to be priced at a unit cost of $1.52 per lb and oil equivalents estimated to be priced at $19 per BOE.

The resource mining company expects to deliver approximately $3.3 billion of operating cash flows for the rest of 2015 at a rate of $2.40 per lb of copper and with each 10 cents per lb change in copper, adding to $110 million for the remaining 2015. The total capital expenses for the remainder of 2015 are forecasted to be about $6.3 billion including, $3.5 billion for mining and $2.8 billion for oil & gas.

Importantly, Freeport-McMoRan has strategically declared $2 billion of At-the-Market (ATM) equity program in the third quarter of 2015 to further strengthen its liquidity position and balance sheet. Through this key program, the company has raised net proceeds of about $1.2 billion by selling 114.8 million shares of its common stock at a rate of $10.63 per share till date. Moreover, Freeport-McMoRan recently announced a cash dividend of 5 cents per share on its common stock payable November 2, 2015 to the key stakeholders as of October 15, 2015.

The resource major is focused on strengthening its balance sheet by delaying the exploration programs and consecutively shortening the mining schedules along with postponing the dividend distribution program. Additionally, the company is raising capital and adding cash flow streams by timely introductions of stock selling programs.


Overall, the investors are advised to avoid making equity investments in Freeport-McMoRan looking at the poor growth prospects of the company. Moreover, Freeport-McMoRan is debt-burdened with significant total debt of $20.70 billion against weaker total cash position of $338.00 million only, restricting the company to continue with its operations profitably.
Published on Nov 5, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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