In a Jan. 26 research note, Eight Capital analyst Ralph Profiti reported that Freeport-McMoRan Inc.'s (FCX:NYSE) "Q4/17 results were solid, with cash costs below expectations and adjusted earnings per share (EPS) at the high-end of consensus," achieving a "positive" impact.
Adjusted EPS was a beat at $0.51, compared to Eight Capital's estimate of $0.36 and consensus' expectation of $0.49.
Copper production in the quarter was in line at 1,007 million pounds (1,007 Mlb). Gold production of 567 thousand ounces (567 Koz) exceeded expectations due to "higher throughout at PT Freeport Indonesia (PTFI), 178 thousand tons per day (178 Ktpd) versus our 159 Ktpd," explained Profiti. Copper sales of 1,107 Mlb met guidance; gold sales, at 593 Koz, did not, coming in 5% lower. Unit net cash costs of $1.04 per pound ($1.04/lb) of copper were lower than the expected $1.07/lb.
Freeport-McMoRan maintains its guidance for FY18, which reflects an anticipated "high-gold year at PTFI," the analyst indicated, with expected sales of 3.9 billion pounds of copper and 2.4 million ounces of gold. Cash costs are forecasted to be $0.97/lb. Capital spending guidance increased some, to $2.1 billion ($2.1B) from $2B. About $1.2B of that budget are allocated for the major Grasberg and Lone Star projects, specifically $850 million for the latter.
The company ended FY17 with less net debt than in Q3/17, $8.7B versus $9.8B, and this should drop further, Profiti purported. "We forecast net debt decreasing to $5.2B by 2018E." These figures compare to peak net debt of $20.48B in Q1/16.
As for the latest on Lone Star, prestripping is underway, and first copper is anticipated by the end of 2020. The oxide project should generate "200 Mlb of annual production for ~20 years" and "advances the potential for development of significant sulfide resources in the long-term," noted Profiti. "Lone Star presents a low-risk opportunity given its proximity to existing Safford infrastructure operations and is capital efficient at $9.4 thousand per ton ($9.4K/ton) of copper equivalent versus [the] industry average [of] ~$15K/ton."
Profiti highlighted that potential value for Freeport-McMoRan exists in its exposure to rising copper and gold prices and its advancement of projects, including El Abra, Cerro Verde and Lone Star. Additionally, the miner "screens as one of the most disciplined capital allocators in the peer group."
Eight Capital currently rates this mining company Neutral.
Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.
Disclosures from Eight Capital, Freeport-McMoRan., Comment, Jan. 26, 2018
Conflicts of Interest: Eight Capital has written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research and other businesses. The compensation of each Research Analyst/Associate involved in the preparation of this research report is based competitively upon several criteria, including performance assessment criteria, the quality of research and the value of the services they provide to clients of Eight Capital. The Research Analyst compensation pool includes revenues from several sources, including sales, trading and investment banking. Research analysts and associates do not receive compensation based upon revenues from specific investment banking transactions.
Eight Capital generally restricts any research analyst/associate and any member of his or her household from executing trades in the securities of a company that such research analyst covers, with limited exception.
Research Analyst Certification
Each Research Analyst and/or Associate who is involved in the preparation of this research report hereby certifies that:
• the views and recommendations expressed herein accurately reflect his/her personal views about any and all of the securities or issuers that are the subject matter of this research report;
• his/her compensation is not and will not be directly related to the specific recommendations or views expressed by the Research Analyst in this research report;
• they have not affected a trade in a security of any class of the issuer whether directly or indirectly through derivatives within the 30-day period prior to the publication of this research report;
• they have not distributed or discussed this Research Report to/with the issuer, investment banking at Eight Capital or any other third party except for the sole purpose of verifying factual information; and
• they are unaware of any other potential conflicts of interest.
The Research Analyst involved in the preparation of this research report does not have any authority whatsoever (actual, implied or apparent) to act on behalf of any issuer mentioned in this research report.
IIROC Rule 3400 Disclosures are available here.