Freeport-McMoRan’s Q1 2017 Earnings Review: Favorable Copper Pricing Environment Boosts Earnings

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Freeport-McMoRan released its Q1 2017 earnings result and conducted a conference call with analysts on April 25. [1] As expected, higher copper prices translated into earnings growth for the company. However, the uncertainty surrounding Freeport’s Indonesian operations, which negatively impacted the company’s copper shipments, remains to be resolved.

FCX Q1 2017 Earnings Review 1

Copper prices have risen substantially in recent months as a result of an improved demand outlook from China and the U.S. The Chinese government’s fiscal stimulus targeting the infrastructure sector has boosted the Chinese demand outlook for copper. [2] In addition, accelerating economic growth and the U.S. government’s planned $1 trillion overhaul of domestic infrastructure has boosted the long term demand outlook from the U.S. [3]

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While an improved pricing environment bodes well for Freeport, the company is still engaged in negotiations with the Indonesian government over the long term future of its Indonesian operations. Freeport resumed copper concentrate exports from Indonesian in April, after suspending exports in January in order to comply with regulatory changes effected by the Indonesian government. The suspension of exports from Indonesia was largely responsible for the decline in the company’s copper shipments in Q1. The temporary agreement to resume exports allows the company to continue exports till October 10, by which time the company management hopes to have a permanent deal in place. [1] Freeport is looking for any replacement agreement to have similar terms to its existing contract of work with the Indonesian government, which guarantees long term stability on legal and fiscal matters to the company. [1] A permanent resolution of these issues is necessary to ensure that the company can continue to operate in Indonesia without any disruptions. We will be keeping an eye on how Freeport’s negotiations with the Indonesian government pan out.

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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. Freeport-McMoRan’s Q1 2017 Earnings Call Transcript, Seeking Alpha [] [] []
  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 []