Why Freeport’s 2017 Guidance Could Be in Disarray
Freeport’s 2017 guidance could be in disarray because of Grasberg issues. Freeport’s debt reduction plan would be impacted due to the Grasberg impasse.
Currently, Freeport is barred from exporting copper concentrates from Indonesia. The company’s export permit expired earlier this year.
Currently, total copper inventories in LME-registered warehouses stand at ~330,000 metric tons—similar to levels at the beginning of the year.
Miners such as Freeport-McMoRan (FCX) and Glencore (GLNCY) (UK) (UKX-INDEX) depend on Chinese metal demand.
According to estimates from Thomson Reuters, ~200,000 metric tons of copper production have been lost due to production stoppages until March 21.
Copper closed at $5,741 per metric ton on March 23. Copper has risen 4.0% in 2017. In 2016, copper prices rose 17.4% and ended a five-year price drought.
Freeport-McMoRan closed at $12.83 on March 23—0.23% lower than its closing the previous day. So far, 2017 has been a somber year for Freeport investors.
After a weak performance on Thursday, crude oil prices are slightly higher on Friday. Higher US crude oil inventory levels are weighing on the oil market.
After showing weakness for three consecutive trading weeks, crude oil opened lower this week. Crude oil continues to move lower.
After falling for five trading days, crude oil prices are stable in the early hours on Tuesday. The market is looking forward to OPEC’s monthly report.
In this article, we’ll look at different copper producers’ interest coverage ratios. The interest coverage ratio measures a company’s ability to make interest payments.
Equity issuance raises a company’s equity base, leading to earnings dilution. Both Freeport and Glencore issued shares at depressed valuations.
Glencore raised cash by selling assets last year. However, the company didn’t sell a stake in any of its core assets. Instead, it managed to raise cash by selling a 50% stake in its agriculture business.
Freeport-McMoRan (FCX) generated free cash flow of $916 million in 2016. Prior to that, it generated free cash flow of -$3.1 billion in 2015 and -$1.6 billion in 2014.
A company’s net debt is its total debt minus its cash and cash equivalents. Freeport-McMoRan’s (FCX) net debt fell to $11.8 billion at the end of 2016.
According to the consensus estimates compiled by Thomson Reuters, analysts expect Southern Copper to post an adjusted EBITDA of $2.9 billion in 2017.
Investors can use several metrics to measure a company’s profitability. However, for companies in the commodity space, EBITDA (earnings before interest, tax, depreciation, and amortization) is the most common.
According to data compiled by Thomson Reuters, analysts expect Freeport-McMoRan (FCX) to post an adjusted EBITDA of $5.3 billion in 2017, compared to $4.9 billion in 2016.
All copper producers reported lower unit cash costs in 2016. We can attribute this industrywide phenomenon to three key factors.
Freeport-McMoRan (FCX) expects its unit cash costs after by-product credits to average $1.06 per pound in 2017, compared to $1.26 per pound in 2016.