Freeport-McMoRan Burned Cash in 4Q15: Will 2016 Be Better?
Freeport-McMoRan Stock Whipsawed after 4Q15 Earnings Release
Freeport-McMoRan’s cash flows
Previously, we saw that Freeport-McMoRan generated a net loss in 4Q15. However, looking at the current challenging situation, markets are more interested in cash flows. Generating negative free cash flows would lead to cash burn. As a result, Freeport might have to borrow to fund its deficit.
Freeport-McMoRan (FCX), along with Teck Resources (TCK) and Glencore (GLNCY), is already grappling with a huge debt pile. Negative free cash flows could only make things worse for these companies. In this article, we’ll explore how Freeport’s cash flows fared in 4Q15 and fiscal 2015. We’ll also be looking at the company’s 2016 cash flow guidance.
Negative free cash flows
Freeport-McMoRan’s operating cash flows fell short of its investing cash flows by a whopping $3 billion in fiscal 2015. However, Freeport managed to save the day by raising $2 billion through an at-the-market equity offering.
In 4Q15, Freeport-McMoRan generated negative free cash flows of $686 million. The company ended the quarter with cash and cash equivalents of $224 million, which is low in relation to Freeport’s scale of operations. Freeport has been generating negative free cash flows in the several quarters, as illustrated in the above chart.
Outlook
Freeport-McMoRan (FCX) expects to barely break even at the free cash flow level in 2016. The company expects to generate $3.4 billion in operating cash flows in 2016, which equals its planned capital expenditure for the year. Freeport has assumed copper at $2 per pound and Brent at $34 per barrel in arriving at this guidance.
The current free cash flow guidance is lower by $600 million from Freeport’s previous guidance, in which the company assumed Brent at $45 per barrel. However, even the current guidance might prove to be high if commodity prices fall further. We’ll discuss this in detail in the next part of this series.
You can also consider the Materials Select Sector SPDR ETF (XLB) to get a diversified exposure to the materials sector. Together, Freeport-McMoRan and Newmont Mining (NEM) comprise 3.5% of XLB’s portfolio.
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