FCX Freeport McMoRan Inc

Metals and mining powerhouse Freeport-McMoRan Copper & Gold Inc. (FCX) posted a net income of $1.5 billion or $1.57 per share in the first quarter of 2011, outshining the Zacks Consensus Estimate of $1.26 per share and the year ago net income of $897 million, $1.00 per share.

Quarterly revenues of $5.7 million surpassed the Zacks Consensus Estimate of $5.39 million and were up 30.9% year over year.

Sales Prices and Volumes

Consolidated unit net cash costs were $0.79 per pound of copper in the first quarter, versus $0.82 per pound in the prior-year quarter primarily because of higher gold and molybdenum by-product credits in the 2011 period.

However, copper sales volumes plunged 3.5% year over year in the quarter to 926 million pounds due to lower sales from Indonesia and North America because of timing of shipments. 

Gold sales volumes were almost flat at 480,000 ounces. Molybdenum sales volumes of 20 million pounds were up by 17.6% year over year reflecting improved demand in the chemical and metallurgical sectors.

Operations:

North America Copper Mining -- Copper sales in the quarter in North America were 276 million pounds lower than 391 million pounds in the first-quarter of 2010 because of timing of shipments. However, production was higher due to increased mining and milling activities at Morenci. Increased mining and milling activities and higher input costs led to higher production and delivery costs in the reported quarter.

For 2011, the company expects sales from North America copper mines to approximate 1.2 billion pounds of copper, compared to 1.1 billion pounds of copper for 2010. The restart of Miami and Chino mines and potential expansion of Morenci are expected to further increase production in future periods.

South America Mining -- Copper sales from these were 312 million pounds slightly higher than the year-ago quarter. Higher input costs of materials, energy and currency exchange rates led to higher production and delivery costs in the reported quarter.

For the year 2011, the company expects South America sales of 1.3 billion pounds of copper and 100 thousand ounces of gold.

Indonesia Mining -- The mines’ copper sales were lower at 278 million pounds in the first quarter of 2011 versus sales of 296 million pounds in the prior year quarter primarily because of timing of shipments. Gold sales however approximated first-quarter 2010 sales.

FCX expects 2011 sales to approximate 1.1 billion pounds of copper and 1.5 million ounces of gold.

Africa Mining -- Copper sales were 60 million pounds in the first quarter of 2011, a decline of 9.1% y/y.

FCX expects Tenke Fungurume sales of approximately 285 million pounds of copper and over 20 million pounds of cobalt for the year 2011.

Molybdenum -- Consolidated molybdenum sales from mines were higher at 20 million pounds in the first quarter of 2011, compared to 17 million pounds in the first quarter of 2010.

For the year 2011, Freeport expects molybdenum sales from its mines to approximate 73 million pounds, compared to 67 million pounds in 2010.

Financial Review      

Net cash cost per unit in the quarter decreased 3.7% to 79 cents per pound versus 82 cents in the first quarter of 2009. Operating cash flows of $2.4 billion for first-quarter 2011 increased by a robust 29.8% from $1.8 billion as of March 31, 2010. Capital expenditures totaled $505 million for the first quarter of 2011.

As of March 31, 2011, total debt was approximately $4.8 billion.

Guidance

In 2011, Freeport expects to sell 3.9 billion pounds of copper, 1.6 million ounces of gold and 73 million pounds of molybdenum. For the upcoming quarter, the company projects sales of 965 million pounds of copper, 365 thousand ounces of gold and 17 million pounds of molybdenum. The company expects average copper prices of $4.25 per pound, $1,400 per ounce of gold and $15 per pound of molybdenum for fiscal year 2011.

Operating cash flows are estimated to be $8.3 billion in 2011.

Freeport expects capital expenditures of $2.5 billion in 2011, of which $1.3 billion is expected to be spent on major projects which include underground development activities at Grasberg, construction activities at the Climax molybdenum mine and completion of the initial phase of the sulfide ore project at El Abra. In addition, FCX is considering additional investments at several of its sites.

Freeport has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term Neutral recommendation.

The company faces stiff competition from Newmont Mining Corp. (NEM) and Southern Copper Corp. (SCCO).

 
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