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Earnings Preview: Freeport-McMoRan

Zacks Equity Research

Mining giant Freeport-McMoRan Copper & Gold (FCX) is slated to report its first-quarter 2012 results on Thursday, April 19. The Zacks Consensus Estimate for earnings for the quarter is 85 cents a share, representing an estimated year-over-year decline of 46.02%.

With respect to earnings surprises, Freeport has outperformed the Zacks Consensus Estimate in three of the trailing four quarters while it missed the forecast on one occasion. The Arizona-based company has delivered an average positive earnings surprise of 9.67% over the past four quarters, implying that it has beaten the Zacks Consensus Estimate by that measure.

Fourth Quarter Highlights

Freeport’s fourth quarter earnings per share of 67 cents beat the Zacks Consensus Estimate by 3 cents. Profit plunged 58.7% year over year to $640 million. Revenues tumbled 25.7% year over year to $4.2 billion, yet beat the Zacks Consensus Estimate of $3.8 billion.

Consolidated sales from mines totaled 823 million pounds of copper, 133,000 ounces of gold and 19 million pounds of molybdenum compared with 941 million pounds of copper, 590,000 ounces of gold and 17 million pounds of molybdenum a year ago.

The results were hurt by labor disruptions and temporary suspension of milling operations at PT Freeport Indonesia resulting from the damage of the concentrate and fuel pipelines.

Estimate Revisions Trend


Estimates for the first quarter has been inclined towards the negative side over the past month with 4 (out of 16 analysts) having lowered their forecasts with 2 moving in the opposite direction. Over the last 7 days, 2 analysts have snipped their estimates for the March quarter with none making positive revisions.

Estimates for fiscal 2012 manifest somewhat mixed trend over the past month. Of the 17 analysts covering the stock, 4 have increased their estimates for the year over the last 30 days while 3 have reduced their forecasts. There were 3 negative revisions over the last week for fiscal 2012 with no reverse movements.


Estimate for the March quarter remained static (at 85 cents a share) over the past week and month. For fiscal 2012, the estimate has gone up by 4 cents over the last 30 days. However, the estimate for the current fiscal has declined by a couple of cents over the past week. The current Zacks Consensus Estimate for fiscal 2012 is $4.13, representing an estimated year-over-year decline of 14.66%. 

Our View

Freeport is the world's largest producer of molybdenum. It competes with Newmont Mining Corp. (NEM) and Southern Copper Corp. (SCCO). The company is conducting explorations close to its existing mines with a goal to boost reserves which will facilitate the development of additional future production capacity across the large minerals districts where it operates.

The company’s favorable exploration data elicit opportunities for meaningful future reserve additions in North and South America as well as in the Tenke Fungurume minerals district in Congo’s Katanga province.

We are increasingly optimistic on Freeport’s African operations consideraing the potential at Tenke. Moreover, the North American drilling data supports the potential for increased sulfide production.

However, higher production cost is a concern for Freeport. Unit costs are expected to rise across the company’s copper-producing segments, reflecting higher input costs. Its Indonesian operations are most likely to witness a material year-over-year hike on a per unit basis due to the drop in volumes that will reduce the ability to absorb the operation’s high fixed costs.

Freeport, in March 2012, clipped its copper and gold sales outlook for the first quarter following a strike at its Grasberg mine in Indonesia. Though operations have already started, the mine is slated to reach its full production by the second quarter this year.

Freeport anticipates that the strike will reduce total production and sales by around 80 million pounds of copper and 125,000 ounces of gold. As such, the company truncated its sales volume guidance to 795 million pounds of copper and 300,000 ounces of gold from its previous expectation of 875 million pounds of copper and 425,000 ounces of gold (including 210 million pounds of copper and 400,000 ounces of gold from Grasberg).

We have a long-term Neutral recommendation on Freeport, which is in line with a short-term Zacks #3 Rank (Hold).

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