Freeport (FCX) Misses Earnings, Beats on Revenues in Q4 - Analyst Blog

Freeport-McMoRan Inc. (FCX) reported loss of $2.75 cents per share for fourth-quarter 2014, compared with earnings of 68 cents per share in the fourth quarter of 2013.

The results include net charges of $3.1 billion or $3.00 per share. Barring that impact, earnings were 25 cents a share in the fourth quarter, missing the Zacks Consensus Estimate of 35 cents.

For the full year 2014, net loss came in at $1.26 per share in contrast to earnings of $2.64 in 2013. Barring net charges of $3.3 billion or $3.22 per share in 2014, earnings came in at $1.96 per share for 2014, which missed the Zacks Consensus Estimate of $2.05 per share.

Revenues declined 11% year over year to around $5,235 million in the fourth quarter, but surpassed the Zacks Consensus Estimate of $5,182 million. For the full year 2014, revenues increased 2.5% year over year to $21,438 million, exceeding the Zacks Consensus Estimate of $21,068 million.
 
Consolidated sales from mines decreased to 972 million pounds of copper in the fourth quarter from 1.14 billion pounds in the year-ago quarter, mainly due to the sale of Candelaria in Nov 2014 and lower sales from Cerro Verde and Indonesia. Sales of gold also declined to 377,000 ounces in the reported quarter from 512,000 ounces a year-ago. Gold sales decreased due to lower ore grades.
 
Sales of molybdenum decreased modestly to 21 million pounds in the reported quarter from 22 million pounds in the fourth quarter of 2013.

 

Freeport-Mcmoran Copper & Gold Inc. - Earnings Surprise | FindTheBest

 

Operational Update

Consolidated average unit net cash costs (net of by-product credits) increased to $1.47 per pound of copper in the quarter from $1.16 per pound a year ago mainly due to lower copper and gold sales volumes.

Average realized price per ounce for gold fell to $1,193 per ounce from $1,220 per ounce a year ago while average realized price per pound for copper declined to $2.95 per pound of copper from $3.31 per pound of copper in the prior-year quarter.
 
Mining Update

North America Copper Mines: Copper sales at the mine increased 29.9% year over year to 434 million pounds due to higher mining and milling rates at Morenci and higher ore grades at Chino. Production rose 21.3% to 467 million pounds in the reported quarter.

Freeport expects copper sales from North America to be 1.9 billion pounds in 2015, compared with 1.66 billion pounds of copper in 2014, due to higher rates from the Morenci mill expansion.

South America Mining: Copper sales of 247 million pounds declined 38.6% from the year ago quarter mainly due to the sale of the Candelaria and Ojos del Salado operations and expected lower ore grades at Cerro Verde. Gold sales went down 76.5% to 8,000 ounces. Copper production went down 33.2% to 253 million pounds in the reported quarter and gold production decreased 67.7% to 10,000 ounces in the quarter.

In Nov 2014, Freeport completed the sale of its 80% ownership interests in the Candelaria and Ojos del Salado copper mining operations and supporting infrastructure to Lundin Mining Corporation for $1.8 billion in cash, before closing adjustments and contingent consideration of up to $200 million. Barring contingent consideration, Freeport booked after-tax net proceeds of $1.5 billion and logged an after-tax net gain of $450 million.

South America mining is expected to report sales of around 0.9 billion pounds of copper for the year 2015, compared with sales of 1.14 billion pounds of copper in 2014.

Indonesia Mining: Copper sales of 180 million pounds declined 38.4% from the year ago quarter while production decreased 43.8% to 171 million pounds. Gold sales decreased 23.1% to 366,000 ounces and production fell 29.5% year over year to 354,000 ounces in the reported quarter.

Both gold and copper sales decreased in the quarter due to lower ore grades and unplanned work stoppages. Reduced workforce attendance levels in certain operating areas (primarily in the Grasberg open-pit) adversely affected productivity.  Freeport expects sales from Indonesia mining to be around 1 billion pounds of copper and 1.3 million ounces of gold for the year 2015.

In Jul 2014, Freeport signed a Memorandum of Understanding (MOU) with the government of Indonesia under which PT Freeport Indonesia (PT-FI) and the government agreed to negotiate an amended Contract of Work (COW). According to the MOU, Freeport was granted the approval to resume operations at PT-FI. With its export permit, Freeport resumed concentrate shipments from the Grasberg mine in Papua, which had been suspended since January 2014.

In Jan 2015, PT-FI secured a renewal of its export license through Jul 25, 2015.

Africa Mining: Copper sales of 111 million pounds were almost at par with the year ago quarter. Production decreased 3.6% to 107 million pounds in the quarter. The sales at the mine are expected to be 445 million pounds of copper and 32 million pounds of cobalt for the year 2015.

Molybdenum: Molybdenum production of 11 million pounds in the fourth quarter was lower than 12 million pounds produced a year ago.

Financial Position

Freeport had cash and cash equivalents of $464 million as of Dec 31, 2014, down 76.6% from $1,985 million as of Dec 31, 2013. Freeport had long-term debt of about $18.5 billion as of Dec 31, 2014, down from $20.4 billion as of Dec 31, 2013.
 
Freeport’s operating cash flows were $1.1 billion in the fourth quarter. Capital expenditures totaled $1.8 billion in the reported quarter.

Oil and Gas Operations (FMO&G)

In May and early June of 2013, Freeport completed the acquisitions of Plains and McMoRan Exploration and formed a premier U.S. based natural resource company collectively called FM O&G, and added a high quality portfolio of U.S.-based oil and gas assets to its global mining business.

In the fourth quarter, realized revenues for oil and gas operations were $725 million ($59.95 per barrels of oil equivalents/BOE) compared with $1,222 million ($73.58 per BOE) in the year ago quarter. Cash production costs totaled $265 million ($21.93 per BOE) in the quarter. Sales volume was 8.1 million barrels of oil equivalent (MMBOE) in the quarter.

Guidance

For 2015, Freeport expects consolidated sales to be around 4.3 billion pounds of copper, 1.3 million ounces of gold, 95 million pounds of molybdenum and 55.5 MMBOE. For the first quarter of 2015, the company expects 950 million pounds of copper, 225,000  ounces of gold, 23 million pounds of molybdenum and 13.1 MMBOE.

Consolidated unit net cash costs (net of by-product credits) for copper mines are expected to average $1.53 per pound of copper for the year 2015. Cash production costs are expected to be around $18 per BOE for the year 2015.

For 2015, capital expenditures are expected to be roughly $6 billion for the year 2015, including $2.5 billion for major projects at mining operations and $2.3 billion for oil and gas operations, reflecting a 34% decrease in oil and gas expenditures.

FCX is taking aggressive actions to reduce or defer capital expenditures and other costs and has taken efforts to obtain third-party funding for a significant portion of its oil and gas capital expenditures to maintain financial strength and flexibility in response to recent sharp declines in oil prices. The company has reduced budgeted 2015 capital expenditures, exploration and other costs by $2 billion.

Freeport currently retains a Zacks Rank #5 (Strong Sell).

Other mining companies with favorable Zacks Rank include Coeur Mining Inc. (CDE), Thompson Creek Metals Company Inc. (TC) and Alcoa Inc. (AA). All of them hold a Zacks Rank #2 (Buy).

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