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Freeport-McMoRan's Q4 2016 Earnings Review: Improved Commodity Pricing Environment Boosts Results Amid Regulatory Uncertainty In Indonesia

Freeport-McMoRan Inc. reported its Q4 2016 earnings results and conducted a conference call with analysts on January 25. An improved commodity pricing environment helped drive an improvement in the company's quarterly results. Freeport, the world's second largest copper producer, benefited from a 13% year-over-year increase in realized copper prices . A favorable demand outlook for copper in the U.S. and better than expected economic growth in China boosted copper prices in Q4 2016. In addition, the sharp increase in gold prices in the first nine months of 2016 helped Freeport realize higher gold prices in Q4 2016, as compared to the corresponding period of 2015. Lastly, higher oil and gas prices in the wake of the production cut by OPEC in November 2016 were also reflected in Freeport's Q4 results.

Freeport's results benefited from higher copper production from the expanded Cerro Verde mine in Peru and the mining of higher grade ores at the Batu Hijau mine in Indonesia. Expansion in output from these low-cost mines also drove down unit costs for Freeport's copper mining operations. The company's gold production also benefited from the mining of higher grade ore at Batu Hijau. Whereas the Batu Hijau mine helped drive the company's results in Q4 2016, changes in the Indonesian government's mining policy have hampered operations at the mine this year.

Freeport has stopped exports from its Indonesian operations with effect from January 12 as a result of the aforementioned regulatory changes. Among the changes required for exports to resume from Indonesia, Freeport is expected to commit to a shorter term mining license from its existing long term investment agreement with the Indonesian government. (Check out our article on this issue for more details - Why Has Freeport Halted Copper Exports From Indonesia? ) While Freeport has agreed to shift to the new mining license, the company is currently engaged in negotiations with the Indonesian government in order to safeguard its rights under the existing arrangement. While the company management remains confident of a swift resolution to its negotiations with the Indonesian government, previous negotiations with the government have been more complicated. The last time that regulatory changes impacted the Indonesian mining industry in January 2014, it took nearly seven months for a complete resumption of normal operations in Indonesia for Freeport. A swift resolution to the ongoing uncertainty in Indonesia is certainly important for Freeport's business prospects. We will be keeping a close eye on this issue.

FCX Q4 2016 Earnings Review 2

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.