How Much Can Freeport’s Copper Production Fall Next Year?
Analyzing Copper Producers’ 1Q16 Earnings and Future Plans
Freeport’s copper production
Despite its announcing production curtailments in 2015, Freeport-McMoRan’s (FCX) copper shipments are expected to increase by ~1 billion pounds in 2016. This is almost 22% above what Freeport produced in 2015.
Freeport’s curtailments would be more than offset by the new supply from its Cerro Verde mine in Peru (EPU) (ILF). Peru expects to produce 65% more copper in 2016 compared to last year.
Guidance could fall
Freeport-McMoRan now expects to produce 5 billion pounds of copper in fiscal 2016 and 4.7 billion pounds in fiscal 2017. The company has downwardly revised its guidance by 100 million pounds for both years to reflect the production loss from the Morenci stake sale. The company’s 2016 production guidance could fall even more as it completes more asset sales transactions during the year. You can see the timeline of Freeport’s asset sales in the chart above.
The current guidance does not account for the stake sale in Tenke Fungurume. According to Freeport, the transaction is expected to close in 4Q16. This would mean that the company’s production could be lower in fiscal 2016 from the current guidance of 5 billion pounds.
Fiscal 2017 production
Last year, Freeport-McMoRan’s (FCX) share from the Tenke Fungurume mine was 449 million pounds. If the sales transaction is completed later this year, we could see its impact on Freeport’s fiscal 2017 copper production.
Looking at Freeport’s current guidance, the company might now only produce ~4.3 billion pounds of copper next year. The production could drop even further as Freeport is looking to sell stakes in some of its other copper mines. This includes Grasberg, where Rio Tinto (RIO) (TRQ) is Freeport’s partner.
Along with the production report, you should also look at the unit production costs. We’ll discuss this more in the next part of this series.
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