Freeport McMoRan Copper (NYSE:FCX) had a moderately successful year in 2013. While the net income is lower as compared to 2012, things could have been worse considering that the demand from China was relatively subdued this year. Copper prices were lower than in 2012 for the major part of the year and gold prices nosedived. An exact apples-to-apples comparison with last year is not possible since Freeport added the oil and gas business in 2013 to its existing businesses and it formed a significant chunk of the company’s revenue stream. 
In 2014, Freeport’s performance will depend on the prices of copper and gold. Each of these will be influenced by different factors. Let’s cast a look at each in some detail.
We have a Trefis price estimate for Freeport McMoran Copper of $29 which represents a 22% downside to the current market price.
The price of copper will be influenced by two major factors- the demand from China and the Indonesian mineral export ban.
The Chinese economy slowed down in 2013 but not as much as expected. This was primarily due to a fiscal stimulus package announced by the Chinese government to boost construction of highways, railroads etc. The country’s economy is in a state of flux at the moment, as the government is trying to reorient it to a consumption-led growth model from an investment-led one. Therefore, it is not possible to say what 2014 will hold in store for the Chinese economic growth rate. While the days of double-digit growth are definitely over, it will be interesting to see if the growth rate drops below 7%. One cannot negate the possibility of a fiscal stimulus if the growth rate is found faltering because it is widely believed that the Chinese government considers economic growth as essential to social stability. The Chinese demand drives copper prices to a large extent because the country consumes around 40% of the total global production of the metal each year.
The Indonesian government is yet to clarify whether Freeport will receive exemptions from the unprocessed mineral export ban that is slated to come into effect from January 12. The company is Indonesia’s biggest miner and and operates the massive Grasberg copper and gold mines. Grasberg is the world’s second largest copper mine. The company may have to cut its exports to about 40% of current levels and lay off a large portion of its workforce if the ban comes into effect. If the ban stands in its present form, Freeport is expected to face a loss in revenue of around $5 billion next year. This amounts to 65% of its total revenue in Indonesia and more than 25% of its total 2012 revenues of $18 billion. 
The absence of Indonesian copper in global markets will drive prices considerably higher and instead of an expected supply surplus we could end up with a supply deficit.
The price scenario for gold in 2014 is unambiguously pessimistic. The Federal Reserve is expected to gradually withdraw its quantitative easing program next year as the U.S. economy continues to recover. As this happens, investors are expected to withdraw their money from gold assets and invest it in stocks, thus causing a downfall in gold prices. An indication has already come in the last few months of 2013. The Federal Reserve has cut the quantum of quantitative easing by $10 billion each month from $85 billion to $75 billion and gold prices have plunged in response. 
The SPDR Gold Trust, a gold exchange-traded fund (ETF) is widely tracked to gauge investor interest in gold. At the start of 2013, SPDR had more than 43 million ounces of gold reserves, valued at $72 billion. Now, it holds about 26 million ounces of gold. This represents a 40% fall from end-2012 levels. The drop in prices has left that gold worth just $31 billion. 
A small positive for Freeport here is that it has valued its gold reserves at a very conservative long term price of $750 per ounce which is much lower than the most pessimistic expectations for gold prices in 2014. On the other hand, gold mining majors like Barrick Gold and Newmont Mining have assumed prices of $1,500 per ounce and $1,400 per ounce respectively. Therefore, these two companies will have to take a massive write-down on their assets in the fourth quarter while Freeport will not be required to do so, thus preventing an adverse hit to its net income figure. 
Apart from copper and gold, one should also keep an eye on Freeport’s oil and natural gas business. In Q3 2013, oil and gas accounted for 20% of Freeport’s revenues, with a tilt in favor of oil over gas. However, a few years down the line, the company’s natural gas properties in the Gulf of Mexico are expected to deliver huge quantities of natural gas. If the U.S. permits export of liquefied natural gas (LNG) on a large scale, natural gas prices could rise substantially. This will be positive for Freeport’s business. Notes: