Freeport-McMoRan Earnings Review: Strong Copper Prices Drive Results

October 27th, 2017 by Trefis Team
-19.32%
Downside
50.58
Market
40.81
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Freeport-McMoRan Inc. (NYSE:FCX) reported its third quarter results on 25th Oct, 17 and beat market estimates by $.03 per share. Strong copper prices enhanced the quarterly results for the company even though there was a fall in shipment volume as compared to Q3 2016.

Copper is currently trading at its 3-year high levels as the deficit between copper demand and supply widens. Chinese environmental curtailments have substituted the economy’s demand from scrap copper to high grade copper, which is mostly imported. September copper imports for China were higher by 6% Y-O-Y as per the latest data released by the Chinese customs department. [1] In addition to that, improved global economic conditions, especially in the manufacturing sector, has also supported the increase in demand for copper. As per analysts estimation, an additional 5 million tons of copper projects would be required to sustain the copper demand over the next 10 years. [2] However, global supply remains continuously under pressure with current mines nearing exhaustion and the absence of near term successful expansion projects adding to concerns.

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Source: LME Website

Freeport saw a fall in shipment volume this quarter due to continued production disruption in its Indonesian mines and a fall in ore grades in North America. However, with the increased likelihood of the company closing their deal with the Indonesian government before this year end, sales outlook for the year is kept unchanged at 3.7 billion pounds of copper which would remain beneficial for the company given the environment of high global copper prices. [2]

Thus, with the current market dynamics, copper is expected to sustain its current pricing position with greater probability of reaching new highs in the future. This would continue to remain beneficial for Freeport and enable it to improve its cash and debt position going forward.

We have a $13.50 price estimate for Freeport’s stock, which is near the current market price.

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’s September copper concentrates, copper metal imports at half-year high, Metal Bulletin [↩]
  2. Freeport-McMoRan (FCX) Q3 2017 Results – Earnings Call Transcript, Seeking Alpha [↩] [↩]