Freeport (FCX) Swings to Loss in Q1, Beats on Revenues - Analyst Blog

The results include net charges of $2.4 billion or $2.32 per share related to the reduction of the carrying value of oil and gas properties. Barring that impact, loss was 6 cents a share in the first quarter, wider than the Zacks Consensus Estimate of 4 cents.

Revenues declined 16.7% year over year to around $4,153 million in the first quarter, but surpassed the Zacks Consensus Estimate of $4,019 million.

Consolidated sales from mines increased to 960 million pounds of copper in the first quarter from 871 million pounds in the year-ago quarter, mainly due to higher volumes in North America, Indonesia and Africa. This was, however, offset by lower volumes in South America mainly due to the sale of the Candelaria and Ojos del Salado mines.

Sales of gold also increased to 263,000 ounces in the reported quarter from 187,000 ounces a year-ago. Gold sales increased due to higher operating rates at PT Freeport Indonesia (PT-FI).

Sales of molybdenum decreased to 23 million pounds in the reported quarter from 27 million pounds a year ago.

Operational Update

Consolidated average unit net cash costs (net of by-product credits) increased to $1.64 per pound of copper in the quarter from $1.54 per pound a year ago, mainly due to higher costs and lower sales volumes in South America and reduced by-product credits.

Average realized price per ounce for gold fell to $1,186 per ounce from $1,300 per ounce a year ago while average realized price per pound for copper declined to $2.72 per pound of copper from $3.14 per pound of copper in the prior-year quarter.
 
Mining Update

North America Copper Mines: Copper sales at the mine increased 27.2% year over year to 472 million pounds due to higher milling rates and ore grades at Morenci and higher ore grades at Chino. Production rose 17.4% to 452 million pounds in the reported quarter.

Freeport expects copper sales from North America to be 1.94 billion pounds in 2015, compared with 1.66 billion pounds of copper in 2014.

South America Mining: Copper sales of 200 million pounds declined 34.6% from the year ago quarter, mainly due to sale of the Candelaria and Ojos del Salado mines and lower production from Cerro Verde associated with lower ore grades and recovery rates from stockpile material.

South America mining is expected to report sales of around 935 million pounds of copper in 2015, compared with sales of 1.14 billion pounds of copper in 2014 that included copper sales volumes of 268 million pounds from the Candelaria and Ojos del Salado mines.

Indonesia Mining: Copper sales of 155 million pounds increased 42.2% from the year ago quarter while production increased 10% to 154 million pounds. Gold sales jumped 60.5% to 260,000 ounces and production rose 22.6% year over year to 255,000 ounces in the reported quarter. Both gold and copper sales decreased in the quarter due to higher operating rates.

Freeport expects sales from Indonesia mining to be around 885 million 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. The parties entered into a MOU related to an amended Contract of Work (COW), which was extended to July 25, 2015. Negotiations are taking into consideration PT-FI's requirement for assurance of legal and fiscal terms post-2021 for PT-FI to continue with its large-scale investment program in Papua, Indonesia.

Per the MOU, no terms of the COW other than those relating to export duties, a smelter bond and increased royalties will be changed until the completion of an amended COW.

PT-FI is required to apply for renewal of export permits at six-month intervals and the next renewal date is July 25, 2015.

Africa Mining: Copper sales of 133 million pounds were 58.3% higher from the year ago quarter because of timing of shipments and higher ore grades. Production increased 6.4% to 116 million pounds in the quarter. The sales at the mine are expected to be 455 million pounds of copper and 34 million pounds of cobalt for the year 2015.

Molybdenum: Molybdenum production of 13 million pounds in the first quarter was at par with the year ago quarter.

Financial Position

Freeport had cash and cash equivalents of $549 million as of Mar 31, 2015, down 60.2% from $1,378 million as of Mar 31, 2014. Freeport had long-term debt of about $19,754 million as of Mar 31, 2015, down from $19,759 million as of Mar 31, 2014.
 
Freeport’s operating cash flows were $717 million in the first quarter. Capital expenditures totaled $1.9 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 first quarter, realized revenues for oil and gas operations were $547 million ($43.71 per barrels of oil equivalents/BOE) compared with $1,245 million ($77.22 per BOE) in the year ago quarter. Cash production costs totaled $254 million ($20.26 per BOE) in the quarter. Sales volume was 12.5 million barrels of oil equivalent (MMBOE) in the quarter.

Guidance

For 2015, Freeport expects consolidated sales to be around 4.2 billion pounds of copper, 1.3 million ounces of gold, 95 million pounds of molybdenum and 52.35 MMBOE. For the second quarter of 2015, the company expects 960 million pounds of copper, 300,000 ounces of gold, 25 million pounds of molybdenum and 12.9 MMBOE.

Consolidated unit net cash costs (net of by-product credits) for copper mines are expected o be lower in the second half of 2015 and average $1.53 per pound of copper for the year 2015. Cash production costs are expected to be around $19 per BOE for the year 2015.

For 2015, capital expenditures are expected to be roughly $6.5 billion, including $2.5 billion for major projects at mining operations and $2.8 billion for oil and gas operations.

Freeport is taking aggressive actions to reduce or defer capital expenditures and is considering funding alternatives to advance growth projects in its oil and gas business, including consideration of a sale of public equity for a minority interest in its oil and gas subsidiary.

Additional capital cost reductions, potential additional divestitures or monetizations and other actions will be pursued in order to maintain a strong balance sheet while preserving a strong resource position and portfolio of assets with attractive long-term growth prospects.

Freeport currently retains a Zacks Rank #3 (Hold).

Other mining companies with favorable Zacks Rank include Energy Fuels Inc. UUUU, Orbite Aluminae Inc.EORBF and Paramount Gold and Silver Corp. PZG. While Energy Fuels holds a Zacks Rank #1 (Strong Buy), Orbite Aluminae and Paramount Gold and Silver hold a Zacks Rank #2 (Buy).