Freeport-McMoRan’s Q2 2017 Earnings Review: Favorable Pricing Environment Boosts Results As Indonesian Conundrum Remains Unresolved

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Freeport-McMoRan reported a considerable improvement in its second quarter results driven by a favorable copper pricing environment.

Copper prices have risen considerably this year, driven by an improved demand outlook. Copper is a metal which has diverse applications in industry and construction. China, the world’s largest consumer of the metal, instituted a fiscal stimulus aimed at boosting infrastructure spending last year, which has translated into an improved demand outlook for copper from the country. [1] In addition, President Trump’s planned $1 trillion overhaul of U.S. transportation infrastructure has boosted the demand outlook for copper from the U.S. [2]

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While a favorable pricing environment helped boost Freeport’s results, the company is still engaged in negotiations with the Indonesian government over the terms governing the company’s operations in the country over the long term. Freeport resumed exports of copper concentrate from Indonesia in April on a temporary six-moth permit, after regulatory changes to the country’s mining regime had forced the company to stop exports in January. Though no long term agreement has been reached so far, the company management remains optimistic about arriving at an agreement with the Indonesian government in the coming months. [3] In the meantime, the company’s Indonesian mining operations have also been negatively impacted by worker absenteeism. [3] Thus, Indonesia remains an area of uncertainty for Freeport, one which the company management is working hard to resolve. Should Freeport be able to arrive at a satisfactory long term arrangement with the Indonesian government, the company can profit from a favorable pricing environment, as discussed previously. The following chart illustrates our forecast for copper prices.

We will continue to monitor the latest developments pertaining to Freeport’s operations in Indonesia as the company tries to overcome the issues weighing on its operations in the region.

Have more questions about Freeport-McMoRan? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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. China plans Rmb4.7tn in infrastructure funding, Financial Times []
  2. Trump Begins to Map Out $1 Trillion Infrastructure Plan, Wall Street Journal []
  3. Freeport-McMoRan’s Q2 2017 Earnings Call Transcript, Seeking Alpha [] []