Strong Copper, Gold Prices Carry Freeport McMoran
Freeport McMoran Copper (NYSE:FCX) released its Q2 earnings where earnings more than doubled as it produced and sold more copper and gold to take advantage of high metal prices in the spot market. Freeport McMoran Copper has extensive copper mining and smelting operations in North and South America, Indonesia and Africa. The company competes with other miners such as Southern Copper (NYSE:PCU), Codelco and Newmont Mining (NYSE:NEM).
Our analysis of the company leads us to believe that its copper business contributes to almost three-quarters of its total value, which we estimate at $57.60.
Results at a Glance & Outlook
Freeport, the world’s largest copper miner, reported a net income of $1.37 billion – about a 110% increase from the same period last year. The average realized price for copper was $4.22 per pound and $1,509 per ounce for gold as the company ramped up its copper production by 4% and gold production by 11% as prices stayed at elevated levels.
Freeport has spent heavily to improve its production capacity and has been on the search for new projects. The company set aside almost $2.5 billion for capital expenditures with $1.3 billion earmarked for major projects this year. We estimate that the consolidated copper sales will be 3.9 billion pounds and 1.6 million ounces for gold during 2011.
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- What To Expect From Freeport’s Q2 Results
- How Is Freeport Stock Faring Amid Volatile Copper Prices?
- Copper Prices Have Recovered A Bit. Is Freeport Stock Worth A Look?
- Lower Copper Prices Will Weigh On Freeport’s Q3 Results
- What’s Happening With Freeport-McMoRan Stock?
Though copper and gold prices stagnated for a brief period during April-May, we expect that the Chinese demand for copper will increase by the year end pushing up the average realized prices for the metals. Average realized prices for copper during 2011 are estimated at $4.54 per pound and for gold is close to $1,540 per ounce. At these estimates, the company’s revenues could reach $28.5 billion during 2011.
However, Freeport has been plagued from production woes at some of its major mines and this may affect the 2011 revenues. At the Grasberg mine, the world’s largest copper and gold reserve base, the production may fall this year due to an eight-day labor strike in July that temporarily halted the operations at the mine. Freeport may have lost 35 million pounds of copper and 60,000 ounces of gold production during the strike. Moreover, lower quality copper ore has resulted in a decline in the production levels for the company in the past.
We discussed the impact of this situation in our article titled ‘Freeport Plagued by Lower Copper Ore Quality‘. The company will need to have to focus on its production levels in order to grab a larger share of the growing metals market.