Freeport-McMoRan: a Screaming Buy?

Freeport-McMoRan (FCX) announced fourth quarter ended December 31, 2015 total revenue of $3.8 billion, down 28 percent year-over-year from $5.2 billion during the same period last year.

Freeport-McMoRan declared fourth quarter of 2015 adjusted net loss of $21 million or $0.02 per share compared to adjusted net income of $267 million or $0.26 in fourth quarter of 2014.

The key natural resources company reported continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising mining costs.

Freeport-McMoRan is continuously growing its total cash flows and EBITDA at different copper prices with average EBITDA for gold, molybdenum and oil of $1,100, $6 and $37 respectively.
The average operating cash flows excluding working capital alterations for gold, molybdenum and oil are also $1,100, $6 and $37 respectively.

Improving copper conditions   

The worldwide copper exchange inventories depicts approximately 8 days of core commodities consumption and indicate doubtful international economic conditions which are poorly impacting the key commodity market sentiments. The key demand growth in China is slowing gradually and western demand that is improving steadily but still below estimates.

Freeport-McMoRan continues to focus on minimizing key capital expenditures and other non-core expenses while diversifying its major copper production verticals through ongoing strong operations across, North America, South America, Middle East, Africa and China which is believed to deliver long-term company’s profitability while benefiting the key stakeholders.

The natural resources mining company has significant offshore/ onshore assets having valuable resources and related infrastructure. The key mining activities in recent past have minimized the risks at DW GOM prospects with nearly 100%-possession of production facilities. Earlier major investments allow production to enhance from the fourth quarter of 2015 rates and Freeport-Mcmoran has deferred 2016 till 2017 exploration and development activities which is converging with the company’s commitment towards delivering improved shareholder returns. Importantly, Freeport-Mcmoran has attractive inventory of key long-term development and production prospects to be pursued once oil price improves.

Maintaining cash flow  

Freeport-Mcmoran is committed towards sustaining healthy cash position and controlling non-core expenses thus, reducing total debt. By the concluding year 2015, FREEPORT-MCMORAN had nil amounts drawn under its strategic $4 billion of revolving bank credit facility. The company has 2.15% and 2.30% of senior notes with controlled short-term debt maturity program.

The ongoing commitment of Freeport-Mcmoran towards increasing high-quality liquids production at manageable costs coupled with long-term debt maturities is estimated to provide additional revenue streams while developing attractive cash position for the company focused on pursuing long-term growth investments while delivering impressive shareholder returns.

The consensus estimate among 18 polled investment analysts evaluating Freeport-McMoRan Inc. suggests that the company would outperform the market. This consensus rating is maintained since the investment analyst’s sentiments got better on Aug 06, 2009. The earlier consensus estimate suggested investors to hold their position in the company.

There’s a mix of investor’s sentiments about the growth prospects of Freeport mainly due to significant company’s expansion potential but, restricted by weaker cash position.

Conclusion

Overall, the investors are advised to “Hold” their position in Freeport-McMoRan Inc. considering notable long-term growth prospects of the company and currently weaker cash position with total cash of just $224.00 and huge total debt position of $20.43 billion, restricting the company to continue with its daily operations profitably. The profit margin of -77.07% signifies no profit but loss. The PEG ratio of -1.26 suggests no growth but decline.
Published on Mar 30, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...