How Much Is Freeport-McMoRan Expected To Add To Its Copper Revenue In The Next 5 Years?

by Trefis Team
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Freeport-McMoRan Inc.
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In spite of short-term operational concerns at its Grasberg mine in Indonesia, and global copper price volatility due to re-escalation of the US-China trade war, Freeport-McMoRan (NYSE: FCX) is betting big on the expected boom in electric vehicle sales to drive demand for copper in the medium term. As per Trefis’ estimates, FCX is expected to add over $4.5 billion to its copper revenue over the next five years. Additional revenue is likely to be driven by strong growth in end markets (electric vehicles, building construction, etc.), pick up in global copper shipments, and expected improvement in copper prices beyond 2019.

You can view our interactive dashboard – How Much Is Freeport-McMoRan Expected To Add To Its Copper Revenue In The Next 5 Years? – and modify the key drivers to arrive at your own volume, price and revenue estimate for the company. In addition, here is more Materials data.

Historical Shipment and Revenue Trend Vis-à-vis End Market Performance

  • FCX’s copper shipments have largely trended upward over the last 5 years, driven by growth in its two primary end markets – electric vehicles and building construction.
  • Though EV sales registered strong growth over the last couple of years, FCX’s copper shipments dropped in 2017 due to internal operational issues and lower ore grades mined. However, volume increased in 2018 driven by higher grades and favorable end market demand.
  • FCX’s copper revenue has steadily increased from 2015 to 2018, adding about $2.4 billion in revenues during these four years.

Forecasting Global Copper Market Shipments

  • Trefis estimates global electric vehicle sales to increase from 2.1 million units in 2018 to 6 million units by 2023, registering a CAGR of 23%.
  • With an average usage of about 300 pounds per EV, the total copper shipments to EV manufacturers is expected to triple from the current level to 1.8 billion pounds over the next five years.
  • With many developed as well as developing countries being keen on expanding their EV footprint, the market would likely be the fastest growing end market for copper companies, with a contribution of 6% of total global copper demand.
  • Strong growth in this segment is expected to lead to the global copper shipments increasing almost 3x to 30 billion pounds by 2023.

Forecasting FCX’s Copper Shipments Over the Next 5 Years

  • With the ongoing transition of the company’s Grasberg mine in Indonesia, from open pit to underground, copper production from the region is expected to be negligible over the next two years. This is expected to adversely affect total shipments in 2019 and 2020 as Grasberg contributes about 30% of FCX’s copper volume.
  • However, restarting of production in Indonesia in 2021, and continuing growth in production at the North and South American sites, FCX’s total copper shipments are expected to increase from 3.8 billion pounds in 2018 to 4.8 billion pounds in 2023.

Price Realization

  • FCX’s copper price realization has moved in tandem with global copper price levels historically.
  • Prices have remained under pressure through 2018 due to the US-China trade war. With the re-escalation of trade tensions, copper prices have fallen from $2.95/pound in April 2019 to below $2.70/pound currently.
  • We expect price realization to remain subdued in 2019 at about $2.75/pound and increase gradually with a rise in copper demand to $3.25/pound over the next five years.

Forecasting Freeport’s Copper Revenue

  • Higher copper shipments and better price realization is expected to help FCX increase its copper revenue from $11.1 billion in 2018 to $15.6 billion in 2023.
  • Thus, as per Trefis’ estimates, Freeport-McMoRan is expected to add about $4.5 billion to its copper revenue over the next five years.

Trefis has a price estimate of $14 per share for FCX’s stock, higher than its current market price. About 76% of the company’s value is being driven by its copper segment.

 

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