VALUATION HIGHLIGHTS

1. Copper (North American Mines, South American Mines, Indonesian Mines) constitutes 70% of the Trefis price estimate for Freeport-McMoRan Inc.'s stock.
2. Gold constitutes 19% of the Trefis price estimate for Freeport-McMoRan Inc.'s stock.

WHAT HAS CHANGED?

1. Q4 2023 Earnings
   • Freeport-McMoRan posted a better-than-expected set of Q4 results. While revenue rose by about 3% year-over-year to $5.9 billion, adjusted earnings came in at $0.27 per share. Consolidated sales totaled 1.1 billion pounds of copper, 549 thousand ounces of gold, and 22 million pounds of molybdenum for the quarter.

2. Economic headwinds cloud outlook for copper market
   • A couple of factors cloud the near-term outlook for the copper industry. The U.S. Federal Reserve and other major central banks have been hiking interest rates at an aggressive pace to combat inflation. As of early April 2023, the U.S. Federal funds rate stood at over 4.5%, a decade high. Higher interest rates are widely expected to result in a hard landing for the U.S. economy, leading to weaker demand from the construction and electrical applications sectors. Separately, China, one of the largest copper consumers, is also seeing a crisis of sorts in its real estate market, which could also hurt copper prices.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Freeport's value that present opportunities for upside or downside to the current Trefis price estimate:

Indonesian Copper Mines Division

• Copper Sold: Shipments fell from 1.13 billion pounds in 2018 to 667 million pounds in 2019 on the back of lower production due to the ongoing transition of the Grasberg mine in Indonesia. Shipments increased to 804 million pounds in 2020 due to higher mining rates and higher copper ore grades. In 2021, the metric increased to 1.3 billion pounds and rose further to about 1.58 billion pounds in 2022. Trefis expects the metric to rise steadily to over 1.8 billion tons by 2029. However, if the metric only grows to about 1.4 billion due to risks relating to development activities in key mines, there could be a 10% decline in the stock price.
  


• Average Realized Price per Pound: Average Realized Copper Price Per Pound rose by over 45% to $4.40 per pound in 2021, due to strong demand from the renewables and EV industry and supply constraints, although they declined a bit to about $3.82 per pound in 2022. We expect prices to recover to over $4.60 by 2029. However, if prices only rise to about $4, there could be a 5% decline in our price estimate. On the other side, if prices rise to over $5 per pound by the end of our review period, there could be a 10% upside to our price estimate.
  

BUSINESS SUMMARY

Freeport-McMoRan Inc. (FCX) is involved in the mining, smelting, and refining of copper, gold, and molybdenum. The company runs its mining and smelting operations in North and South America and Indonesia.

FCX is one of the world's largest copper, gold, and molybdenum mining companies in terms of reserves and quantity produced. The Grasberg mine in Indonesia contains the largest single recoverable copper and gold reserve in any mine in the world. As of December 31, 2022, the company's consolidated reserves totaled 111 billion pounds of copper, 26.9 million ounces of gold, and 3.53 billion pounds of molybdenum.

The company's earnings are sensitive to the prices of these metals, particularly copper. Prices of copper, gold, and molybdenum have been recovering recently. A sudden decrease in spot prices would negatively impact the company's earnings, while any upward movement would increase earnings.

SOURCES OF VALUE

Copper is the primary source of revenue

Copper mining is the most important division for Freeport-McMoRan in terms of revenues and profits. In 2022, sales of copper accounted for about 55% of the company's consolidated revenue.

KEY TRENDS

Recovery in global demand and prices for copper

China's fight against pollution has increased the global demand for refined copper, thus aiding prices. Additionally, an optimistic outlook on electric vehicles (EVs) has improved the global outlook on copper. Coupled with President Trump's plans for a $1.5 trillion revamp of U.S. infrastructure, which has raised the demand outlook for copper from the U.S. and led to a recovery in prices of copper in 2017 and supported 2018 price levels, as well. Though prices remained under pressure in 2019 due to the failure of talks between the US and China regarding their trade war and in the first half of 2020 due to the pandemic, the outlook for copper remains positive due to higher demand from electric vehicle manufacturers and industries such as construction and electronics.