Post by Deleted on Jan 21, 2017 15:34:33 GMT
Sarfaraz A. Khan
Follow (3,223 followers)
Energy, commodities, macro, long only
Summary
•Freeport-McMoRan will release its quarterly results on January 25.
•The company's earnings will benefit from higher copper and gold prices on a YoY basis, as well as double-digit growth in sales volume.
•The company is well positioned to report strong free cash flows and beat cash flow guidance.
•The company will report significantly lower debt load.
Freeport-McMoRan (NYSE:FCX), one of the world's largest copper producers, has had an incredible run over the last three months. The miner is gearing up to release its quarterly results next week which will likely give investors another reason to cheer.
Phoenix, Arizona-based Freeport-McMoRan will release its fourth-quarter results before the markets open on Wednesday, January 25. The company, which has struggled due to a weak balance sheet and persistent weakness in commodity prices, showed the first real signs of a turnaround in the third quarter in which it swung to a profit of $0.13 per share from a loss of $0.15 per share a year earlier. That performance was driven by the strength in gold prices and successful cost-cutting efforts.
But in Q3 2016, the company did not receive any support from copper, which was one of the worst performing commodities of the year at that time. Freeport-McMoRan's realized copper price was actually down 8.4% as compared to Q3 2015. The red metal, however, came back sharply in the fourth quarter, wrapping up 2016 with year-to-date gains of almost 17%.
In Q4 2016, the average spot copper price increased by 10.5% from Q3 2016 and 8.1% from Q4 2015, as per data from IndexMundi. Gold, on the other hand, came under pressure in the fourth quarter as the value of the US dollar rose to its highest level in 14 years and the Federal Reserve increased interest rates for the second time since the global financial crisis and signaled additional rate hikes for 2017. Consequently, gold's fourth-quarter average price fell by 8.5% as compared to the third quarter. Still, the fourth-quarter average price was 10.5% higher as compared to the same period last year.
Freeport-McMoRan's third-quarter performance was good, and I believe fourth quarter will be even better since the company will receive support from higher gold and copper prices on a year-over-year basis.
On top of this, Freeport-McMoRan will likely report double-digit growth in copper and gold sales on a year-over-year basis. The company has previously implied from its annual guidance that its copper sales should grow by 16.6% to 1.3 billion pounds while its gold volumes will climb almost 73% to 586,000 ounces in the fourth quarter. With double-digit growth in prices and sales volume, Freeport-McMoRan is well positioned to swing to a large profit from Q4 2015 adjusted loss of $21 million, or $0.02 per share.
Besides, Freeport-McMoRan also became free cash flow positive after suspending dividends, reducing cost structure and curtailing capital expenditure. In the second quarter, the company reported positive free cash flows of $41 million, followed by $486 million in the third quarter. The company will continue this streak. With increase in production and realized prices, the free cash flows can even cross the $550 million level in Q4 2016.
Note that the company's guidance implied free cash flows of $515 million for the fourth quarter, but that forecast was released in late-October, almost a month before copper began to soar to $2.60 per pound. The company was expecting fourth-quarter average copper price of $2.10 in October. The actual realized price will likely come in higher, given the commodity has remained north of $2.40 throughout most of the November-December period. This will give Freeport-McMoRan an opportunity to beat its cash flow guidance.
In addition to this, Freeport-McMoRan will also likely report further improvement in financial health. In the third quarter, the company's net debt, including cash, clocked in at $17.87 billion, depicting a drop of 12.7% from a year earlier. The net debt will fall significantly in the fourth quarter as the company has closed $5.2 billion of asset sales in this period, which mainly include the sale of 70% interest in TF Holdings Limited for $2.65 billion cash, sale of deepwater Gulf of Mexico assets to Anadarko Petroleum (NYSE:APC) for $2 billion cash (before adjustments) and sale of California assets to Sentinel Peak Resources California for $592 million cash (before adjustments). The proceeds of these divestitures will lift Freeport-McMoRan's cash reserves significantly from $1.1 billion at the end of the third quarter, which will lead to lower net debt.
Also, Freeport-McMoRan closed its ATM equity offering announced in July, in late-November, raising gross proceeds of $1.5 billion in the process. That should also have a positive impact on cash reserves.
The substantial reduction in debt will not only boost Freeport-McMoRan's valuation, which has been dragged by the debt load, but also put the company in a great position to achieve its target of reducing debt to the range of $8.4 billion to $10.7 billion by the end of 2017.
The management will also likely shed light on the copper market's outlook, which is looking better following Donald Trump's ascension to the White House. Trump has promised to increase infrastructure spending to more than $500 billion, which should strengthen copper demand.
Freeport-McMoRan will also discuss China, copper's biggest buyer, during the conference call. The Chinese economy expanded by 6.7% last year, which was in line with Beijing's target, though a positive sign was that GDP growth slightly accelerated in Q4 2016 to 6.8%, beating Mr. Market's 6.7% growth forecast. Investors will also likely hear about the company's future plans regarding its Indonesian mine, which is a low-cost asset but has become a major headache due to the government's reluctance to facilitate copper concentrate exports.
Note from author: Thank you for reading. If you like this article, then please follow me by clicking the "Follow" link at the top of this page.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
======================================
C L
Follow (3,223 followers)
Energy, commodities, macro, long only
Summary
•Freeport-McMoRan will release its quarterly results on January 25.
•The company's earnings will benefit from higher copper and gold prices on a YoY basis, as well as double-digit growth in sales volume.
•The company is well positioned to report strong free cash flows and beat cash flow guidance.
•The company will report significantly lower debt load.
Freeport-McMoRan (NYSE:FCX), one of the world's largest copper producers, has had an incredible run over the last three months. The miner is gearing up to release its quarterly results next week which will likely give investors another reason to cheer.
Phoenix, Arizona-based Freeport-McMoRan will release its fourth-quarter results before the markets open on Wednesday, January 25. The company, which has struggled due to a weak balance sheet and persistent weakness in commodity prices, showed the first real signs of a turnaround in the third quarter in which it swung to a profit of $0.13 per share from a loss of $0.15 per share a year earlier. That performance was driven by the strength in gold prices and successful cost-cutting efforts.
But in Q3 2016, the company did not receive any support from copper, which was one of the worst performing commodities of the year at that time. Freeport-McMoRan's realized copper price was actually down 8.4% as compared to Q3 2015. The red metal, however, came back sharply in the fourth quarter, wrapping up 2016 with year-to-date gains of almost 17%.
In Q4 2016, the average spot copper price increased by 10.5% from Q3 2016 and 8.1% from Q4 2015, as per data from IndexMundi. Gold, on the other hand, came under pressure in the fourth quarter as the value of the US dollar rose to its highest level in 14 years and the Federal Reserve increased interest rates for the second time since the global financial crisis and signaled additional rate hikes for 2017. Consequently, gold's fourth-quarter average price fell by 8.5% as compared to the third quarter. Still, the fourth-quarter average price was 10.5% higher as compared to the same period last year.
Freeport-McMoRan's third-quarter performance was good, and I believe fourth quarter will be even better since the company will receive support from higher gold and copper prices on a year-over-year basis.
On top of this, Freeport-McMoRan will likely report double-digit growth in copper and gold sales on a year-over-year basis. The company has previously implied from its annual guidance that its copper sales should grow by 16.6% to 1.3 billion pounds while its gold volumes will climb almost 73% to 586,000 ounces in the fourth quarter. With double-digit growth in prices and sales volume, Freeport-McMoRan is well positioned to swing to a large profit from Q4 2015 adjusted loss of $21 million, or $0.02 per share.
Besides, Freeport-McMoRan also became free cash flow positive after suspending dividends, reducing cost structure and curtailing capital expenditure. In the second quarter, the company reported positive free cash flows of $41 million, followed by $486 million in the third quarter. The company will continue this streak. With increase in production and realized prices, the free cash flows can even cross the $550 million level in Q4 2016.
Note that the company's guidance implied free cash flows of $515 million for the fourth quarter, but that forecast was released in late-October, almost a month before copper began to soar to $2.60 per pound. The company was expecting fourth-quarter average copper price of $2.10 in October. The actual realized price will likely come in higher, given the commodity has remained north of $2.40 throughout most of the November-December period. This will give Freeport-McMoRan an opportunity to beat its cash flow guidance.
In addition to this, Freeport-McMoRan will also likely report further improvement in financial health. In the third quarter, the company's net debt, including cash, clocked in at $17.87 billion, depicting a drop of 12.7% from a year earlier. The net debt will fall significantly in the fourth quarter as the company has closed $5.2 billion of asset sales in this period, which mainly include the sale of 70% interest in TF Holdings Limited for $2.65 billion cash, sale of deepwater Gulf of Mexico assets to Anadarko Petroleum (NYSE:APC) for $2 billion cash (before adjustments) and sale of California assets to Sentinel Peak Resources California for $592 million cash (before adjustments). The proceeds of these divestitures will lift Freeport-McMoRan's cash reserves significantly from $1.1 billion at the end of the third quarter, which will lead to lower net debt.
Also, Freeport-McMoRan closed its ATM equity offering announced in July, in late-November, raising gross proceeds of $1.5 billion in the process. That should also have a positive impact on cash reserves.
The substantial reduction in debt will not only boost Freeport-McMoRan's valuation, which has been dragged by the debt load, but also put the company in a great position to achieve its target of reducing debt to the range of $8.4 billion to $10.7 billion by the end of 2017.
The management will also likely shed light on the copper market's outlook, which is looking better following Donald Trump's ascension to the White House. Trump has promised to increase infrastructure spending to more than $500 billion, which should strengthen copper demand.
Freeport-McMoRan will also discuss China, copper's biggest buyer, during the conference call. The Chinese economy expanded by 6.7% last year, which was in line with Beijing's target, though a positive sign was that GDP growth slightly accelerated in Q4 2016 to 6.8%, beating Mr. Market's 6.7% growth forecast. Investors will also likely hear about the company's future plans regarding its Indonesian mine, which is a low-cost asset but has become a major headache due to the government's reluctance to facilitate copper concentrate exports.
Note from author: Thank you for reading. If you like this article, then please follow me by clicking the "Follow" link at the top of this page.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
======================================
C L