Neutral on Freeport - Analyst Blog
18 August 2011 - 11:00AM
Zacks
We maintain our Neutral
recommendation on Freeport-McMoRan Copper & Gold
Inc. (FCX), which is engaged in mineral exploration and
development; mining and milling of copper, gold, molybdenum and
silver; as well as the smelting and refining of copper
concentrates.
Freeport completed ramp up of
Morenci's mining rates to 635,000 metric tons of ore per day and
milling rates to approximately 50,000 metric tons of ore per day,
resulting in increased copper production of around 125 million
pounds of copper per year. Freeport expects to ramp up production
at Miami to approximately 100 million pounds of copper per year by
2012.
Freeportalso restarted mining and
milling activities at the Chino mine. Incremental annual copper
production is expected to be 100 million pounds in 2012 and 2013
and 200 million pounds in 2014. The company also completed
construction of the $150 million sulphur burner project at the
Safford mine, which is providing a more cost-effective source of
sulphuric acid used in SX/EW operations and lower transportation
costs.
In July 2011, Freeport reported a
profit of $1.37 billion or $1.43 per share in the second quarter of
2011, more than double from $649 million or $0.70 per share in the
same quarter of 2010. The profit exceeded the Zacks Consensus
Estimate by $0.09 per share. Revenues surged 50% to $5.81 billion,
surpassing the Zacks Consensus Estimate of $5.63 billion.
For fiscal 2011, the company’s
capital expenditures are expected to reach $2.6 billion, including
$1.4 billion for major projects and $1.2 billion for sustaining
capital. Major projects for 2011 primarily 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.
Freeport has a strong balance
sheet. As of June 30, 2011, the company had $4.4 billion in
consolidated cash and cash equivalents and $3.5 billion in total
debt. During second-quarter 2011, Freeport repaid $1.2 billion in
debt, including April 2011 redemption of $1.1 billion of
outstanding 8.25% Senior Notes. The company has no significant debt
maturities in the near term; however, it may consider additional
opportunities to prepay debt in advance of scheduled
maturities.
However, the Grasberg minerals
district, the most significant operating asset for Freeport, is
exposed to Indonesian political, economic and social uncertainties.
The company faces regular protests from local residents and has
been targeted with arson, roadside bombs and blockades ever since
it began production in the 1970s. During July 2011, PT Freeport
Indonesia union workers commenced an eight-day labor strike, which
led to a temporary suspension of mining, milling and concentrate
shipments. On July 11, 2011, PT Freeport Indonesia reached an
agreement with the union to end the strike and resume operations.
PT Freeport Indonesia estimates the aggregate impact of the strike
on 2011 production to be approximately 35 million pounds of copper
and 60 thousand ounces of gold.
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). It currently retains Zacks #3 Rank on its
stock, which translates to short-term rating of “Hold”.
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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