Freeport-McMoRan Copper & Gold Inc.
) adjusted earnings of 80 cents per share for the second quarter of
2012 dropped 45.6% from $1.47 per share earned in the year-ago
quarter. The results, however, surpassed the Zacks Consensus
Estimate of 79 cents.
Performance was affected due to less production than the normal
rate after a strike at its Grasberg mine in Indonesia. A surge in
sales from North America and Africa offered some respite.
Including environmental obligations and related litigation
reserves of $53 million or 6 cents per share, reported net income
in the quarter stood at $710 million or 74 cents per share. This
was almost half the prior-year quarter's net income of $1.4 billion
or $1.43 per share.
Revenues slid roughly 23% year over year to $4.48 billion, but
were ahead of the Zacks Consensus Estimate of $4.45 billion.
Consolidated sales from mines declined to 927 million pounds of
copper and 266,000 ounces of gold from 1 billion pounds and 356,000
ounces, respectively, in the prior-year quarter.
Sales of molybdenum also dropped to 20 million pounds in the
reported quarter from 21 million pounds in the second quarter of
2011. This was greater than Freeport-McMoRan's guidance issued in
April, which estimated copper sales at 895 million pounds and gold
sales at 235,000 ounces.
Consolidated average unit net cash costs (net of by-product
credits) increased to $1.49 per pound of copper from 93 cents per
pound in the second quarter of 2011, mainly attributed to reduced
copper volumes in Indonesia, increased mining costs in North
America and lower by-product credits. Operating income slumped
52.4% to $1.31 billion from $2.76 billion in the year-ago quarter.
Financial Position and Dividend
Freeport-McMoRan had cash and cash equivalents of $4.5 billion
as of June 30, 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 June 30, 2012, almost flat
with debt as of December 31, 2011.
Freeport-McMoRan's operating cash flows were $1.2 billion in the
second quarter of 2012 compared with $1.7 billion in second-quarter
2011. Capital expenditures totaled $840 million in the reported
quarter compared with $527 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 in
February, and accordingly, the company paid its quarterly dividend
of 31.25 cents per share in May 2012.
For 2012, Freeport-McMoRan expects consolidated sales from mines
of 3.6 billion pounds of copper, 1.1 million ounces of gold and 81
million pounds of molybdenum. For the third quarter, consolidated
sales are estimated at 885 million pounds of copper, 225,000 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 $13 per
pound for molybdenum for the balance of 2012, consolidated average
unit net cash costs (net of by-product credits) are expected to be
$1.47 per pound of copper in 2012.
In addition to the above-mentioned assumptions, assuming average
prices of $3.50 per pound for copper, operating cash flows are
estimated to approximate $4.7 billion for 2012. Operating cash
flows are expected to be roughly $4 billion, net of $1.2 billion
for working capital requirements and other tax payments.
The company expects to spend $4 billion as capital expenditure
in 2012, which includes $2.5 billion for major projects and $1.5
billion for sustaining capital. Freeport estimates exploration
spending of approximately $275 million in 2012 compared with $221
million in 2011.
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.
Freeport-McMoRan, which competes with
Newmont Mining Corp.
Southern Copper Corp.
), retains a short-term Zacks #3 Rank (Hold). We have a long-term
Neutral recommendation on the stock.
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