Freeport-McMoRan Copper & Gold Inc.
(
FCX
) reported a profit of $913 million or 96 cents per share in the
first quarter of 2012, a 39% drop from the $1.5 billion or $1.57
per share earned in the year-ago quarter. The per share figure,
however, surpassed the Zacks Consensus Estimate of 85 cents per
share.
Performance was affected by work interruption at its Grasberg
mine in Indonesia. A surge in sales from North America offered
some respite.
Including losses on early extinguishment of debt of $149 million
or 16 cents per share, reported net income in the quarter stood at
$764 million or 80 cents per share. This was almost half the prior
year quarter's net income of $1.5 billion or $1.57 per share.
Operational Update
Revenues in the quarter were $4.6 billion, a 19% drop from $5.7
billion in the prior-year quarter, but ahead of the Zacks Consensus
Estimate of $3.8 billion. Consolidated sales from mines declined to
827 million pounds of copper and 288,000 ounces of gold from 926
million pounds and 480,000 ounces, respectively, in the prior-year
quarter.
Sales of molybdenum improved to 21 million pounds in the
reported quarter from 20 million pounds in the first quarter of
2011. This compared with Freeport-McMoRan's trimmed guidance put
forward in March, which estimated copper sales at795 million pounds
of copper and gold sales at 300,000 ounces.
Consolidated average unit net cash costs (net of by-product
credits) increased to $1.26 per pound of copper from 79 cents per
pound in the first quarter of 2011 mainly attributed to reduced
copper volumes in Indonesia, increased mining and input costs in
North and South America and lower by-product credits. Operating
income slumped 41% to $1.7 billion from $2.9 billion in the
year-ago quarter.
Financial Position
Freeport-McMoRan had cash and cash equivalents of $4.5 billion
as of March 31, 2012 compared with $4.8 billion as of December 31,
2011. However, net of non-controlling interests' share, taxes and
other costs, cash available totaled $3.4 billion.
Freeport-McMoRan had long-term debt of $3.5 billion as of March
31, 2012, flat with debt as of December 31, 2011. During the
quarter, Freeport sold $3 billion of senior notes in three tranches
with a weighted average interest rate of 3% and utilized the
proceeds to redeem the balance $3.0 billion of its 8.375% Senior
Notes.
Freeport-McMoRan's operating cash flows were $801 million in the
first quarter of 2012 compared with $2.4 billion in first-quarter
2011. Capital expenditures totaled $707 million in the reported
quarter compared with $505 million in the year ago quarter.
Freeport-McMoRan's Board of Directors authorized a 25% hike in
the annual dividend to $1.25 per share from $1.00 per share. The
first quarterly dividend will be paid on May 1, 2012 to
shareholders of record on April 13, 2012.
Guidance
For 2012, Freeport-McMoRan expects consolidated sales from mines
of 3.7 billion pounds of copper, 1.1 million ounces of gold and 81
million pounds of molybdenum. In the second quarter, consolidated
sales are estimated at 895 million pounds of copper, 235,000 ounces
of gold and 20 million pounds of molybdenum.
Based on current 2012 sales volume and cost estimates and
average price assumption of $1,600 per ounce for gold and $14 per
pound for molybdenum for the balance of 2012, consolidated average
unit net cash costs (net of by-product credits) are expected to be
$1.43 per pound of copper in 2012.
In addition to the abovementioned assumptions, assuming average
prices of $3.50 per pound for copper, operating cash flows are
estimated to approximate $4.7 billion for the year 2012. Operating
cash flows are expected to approximate $4.2 billion, net of $1.1
billion for working capital requirements.
The company expects to expend $4.3 billion as capital
expenditure in 2012, which includes $2.7 billion for major projects
and $1.6 billion for sustaining capital. Freeport estimates
exploration spending of approximately $275 million in 2012 compared
with $221 million in 2011.
Our Take
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.
As per the company's exploration data there are 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 considering the potential at Tenke as well as
increased sulfide production in North America.
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 cost 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.
Headquartered in Phoenix, Arizona, Freeport-McMoRan Copper &
Gold Inc. is engaged in mineral exploration and development; mining
and milling of copper, gold, molybdenum and silver, as well as
smelting and refining of copper concentrates.
The company conducts its operations primarily through its
principal operating subsidiaries, PT Freeport Indonesia,
Freeport-McMoRan Corporation (formerly Phelps Dodge) and Atlantic
Copper. Its major competitors include
Newmont Mining Corp.
(
NEM
) and
Southern Copper Corp.
(
SCCO
). The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the stock over
the near term.
FREEPT MC COP-B (
FCX
): Free Stock Analysis Report
NEWMONT MINING (
NEM
): Free Stock Analysis Report
SOUTHERN COPPER (
SCCO
): Free Stock Analysis Report
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