Buy Freeport-McMoRan for Maximum Gains

Freeport-McMoRan (FCX) has been able to post cash flow which was substantially better than that predicted. This bodes well for the future cash flows and the balance sheet strength as well. The company also beat the EPS estimates by $ 0.02 although it meant an adjusted loss of $ 0.16 per share.

Impressive growth

Operating cash flows for the quarter were $ 740 million slightly up from Q1 2015.
However, Freeport-McMoRan almost halved its capital expenditures to $ 982 million compared to the year-ago quarter to achieve this. This cut in CAPEX will continue as Freeport-McMoRan has estimated a CAPEX of $ 3.3 billion for the full year. This translates into $ 766 million of capital expenditure in the coming three quarters. By this, Freeport-McMoRan expects to achieve an operating cash flow of $ 4.8 billion for the year 2016. And the plan for the next year is to follow Freeport-McMoRan up with a drop in CAPEX to just $ 2.2 billion with an average spend of $ 550 million a quarter.

Freeport-McMoRan also saved on costs of two of its major segments: copper and oil & gas. Consolidated unit net cash costs declined quarter-over-quarter and averaged $ 1.38 per pound of copper for mining operations and $ 15.85 per barrel of oil equivalents for oil and gas operations. Hence, Freeport-McMoRan is doing all that it can to minimize losses and maximize cash flows while its top line is getting thinner.

Sales volume in the first quarter of this year has declined except for copper which jumped 14.6 % compared to the same quarter last year. Otherwise in Gold and molybdenum, the company lost about a quarter of their respective sales volume. And the volume of oil and gas was more or less flat.

The story of average realized price was worse. Only gold prices were up 3.5 % from last year’s prices. Otherwise, there were huge declines in the prices of copper, molybdenum and oil & gas segments.


The combined negative effect of sales and price declines was far more than enough to eclipse the positive effects of the control on expenditure that the company exercised during the quarter. Especially the price of commodities is the factor to be blamed for the net negative result despite some positive news.
Published on May 13, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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