Freeport Reports 1Q15 Earnings: Key Takeaways for Investors (Part 5 of 5)
(Continued from Part 4)
2015 outlook
Previously in this series, we looked at Freeport-McMoRan’s (FCX) 1Q15 financial results. In this part, we’ll look at Freeport’s 2015 outlook.
Freeport expects its copper sales to be 4.2 billion pounds this year, up 7.5% from the previous year. In its gold operations, Freeport expects sales to increase 4% on a year-over-year (or YoY) basis.
Freeport expects its molybdenum sales to be flat this year, while it expects its energy sales to drop 8%.
Barrick Gold (ABX) and Newmont Mining (NEM) are among the leading gold miners (GDX). Southern Copper (SCCO) also has gold mining operations.
MOU with Indonesia
Last year, Freeport’s copper exports from Indonesia were negatively impacted due to regulatory changes. However, Freeport managed to sign a memorandum of understanding (or MOU) with the Indonesian government.
Freeport’s MOU with the Indonesian government was extended for another six months. The MOU allows Freeport to export copper until July 2015. Under this MOU, Freeport had to make several concessions to the Indonesian government. The above chart shows the key terms of this MOU. Extension of this agreement at favorable terms is a strategic priority for Freeport’s management.
Demand slowdown
Copper demand is expected to be subdued this year since Chinese consumption has slowed down. The Chinese real estate market, which is among the major copper consumers, has shown signs of weakness. Most of the indicators of Chinese real estate demand have been trending downward.
A slowdown in China could put pressure on copper prices as well. Freeport expects its EBITDA (earnings before interest, taxes, depreciation, and amortization) to fall by $500 million for every $0.10 per pound decline in copper prices. The converse holds true when copper prices go up.
You can learn more about the copper industry by visiting our copper page.
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