Freeport-McMoRan’s Q1 2017 Earnings Preview: Higher Commodity Prices To Translate Into Earnings Improvement

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Freeport-McMoRan will report its Q1 2017 earnings result and conduct a conference call with analysts on April 25. [1] We expect the company to report improved earnings driven by higher copper and crude oil prices.

Copper is a metal with extensive industrial applications. The prices of the commodity have risen considerably in recent months as a result of a better demand outlook, particularly from China and the U.S. The Chinese government instituted a fiscal stimulus package targeting the infrastructure sector last year. [2] This is expected to boost the Chinese demand for copper in the near term. In addition, the U.S. government’s planned $1 trillion overhaul of domestic infrastructure is expected to boost the demand for copper from the U.S. [3] These developments have translated into a recovery in copper prices over the past few months as shown below.

Copper Prices Apr 2016-Apr 2017

Source: LME

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Apart from higher copper prices, a recovery in oil prices as a result of greater production discipline by OPEC nations should benefit the company’s Oil & Gas division. While the improved commodity pricing environment would certainly boost Freeport’s results in Q1, the lowering of productions levels (by around 60%) at the company’s Indonesian mining operations in Q1 as a result of regulatory changes in the country’s mining regime is likely to dent the company’s earnings. [4] Though Freeport has since resumed normal operations in Indonesia, it is still engaged in negotiations with the Indonesian government for a modified permanent investment agreement governing the company’s operations in the country. We would certainly like to hear more from the management on this front in the earnings conference call. The following tables summarize our expectations from Freeport’s Q1 2017 earnings.

FCX Q1 2017 Earnings Preview

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan

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Notes:

  1. FCX 1Q 2017 Conference Call, Freeport-McMoRan’s News Release []
  2. Stealth China Stimulus Means Fiscal Gap Over 10%, Economists Say, Bloomberg []
  3. Trump Begins to Map Out $1 Trillion Infrastructure Plan, Wall Street Journal []
  4. Freeport-McMoRan Updates Status Of PT Freeport Indonesia Operations, Freeport-McMoRan News Release []