What To Expect From Freeport-McMoRan’s Q4 Results?

Freeport-McMoRan (NYSE: FCX) will release its fourth-quarter results and conduct a conference call with analysts on January 24, 2019. The market expects the company to report an EPS (Non-GAAP) of $0.20 in Q4 2018, as against $0.51 in Q4 2017. We expect the company to post total gross revenue of $21.5 billion in 2018, a 6.6% increase over the $20.1 billion in FY 2017. Higher copper and gold shipments (especially from the Indonesian operations) and marginally higher copper prices are expected to boost the company’s top line, whereas lower administrative expenses and a decline in interest expense (FCX redeemed over $450 million of its debt in 2018) will boost its bottom-line.

We have a price estimate of $13.00 per share for the company, which is higher than the current market price. Our detailed analysis of shipments and prices for each of the segments has been highlighted in our interactive dashboard – Freeport-McMoRan Is Expected To End 2018 On A Positive Note. You can modify our assumptions to arrive at your own price estimate for the company.

Factors Impacting FCX’s Stock Price

After a significant rise in copper prices in mid-2018, markets witnessed a slide in prices in Q3 2018, when copper prices neared $2.60 per pound due to the US-China trade war. Copper price has seen a lot of volatility in the second half of the year. However, the average price in Q4 has been around $2.70-$2.75 per pound. A recovery in prices, along with higher shipments would likely lead to 4.2% higher copper revenues in 2018. FCX’s cash flow is highly sensitive to copper prices. According to management’s disclosure, a $0.10 change in copper price per pound would lead to a change of approximately $105.0 million in the company’s operating cash flow. Thus, if copper price sees a steep fall again due to weak economic data from China, it would affect FCX’s stock adversely.

The company has completed its agreement with the Indonesian government in December, as per which FCX has reduced its stake in the Grasberg mine to 48.8%. Also, mining rights for the company have been extended till 2031, which can be further extended to 2041, subject to a few conditions. The Grasberg mine in Indonesia contains the largest single recoverable copper and gold reserve of any other mine in the world. Finalization of the deal has ended the uncertainty around the company’s Grasberg operations, and we expect FCX to ship 1.20 billion pounds of copper from its Indonesian site.

Additionally, prices of gold (another major driver for Freeport’s revenue) have seen a decline recently, due to a firmer dollar and rising interest rates in the US. We expect the average realized price to be approximately $1,219 per ounce of gold in 2018, marginally lower than 2017. However, we expect revenue from the segment to see a significant rise for the year, mainly due to much higher volume sold. Demand for gold (mainly for hedging) is expected to remain high due to global uncertainty. Clarity on Freeport’s Indonesian operations is also expected to provide a further fillip to the company’s volume and stock price.

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