The iron ore supply is strong. Rio Tinto, BHP Billiton, and Vale SA have all indicated their intentions to continue with their announced plans.
Rio Tinto (RIO) has been the best performer among all the iron ore producers since January 2014.
Any significant fall in crude oil prices greatly impacts iron ore companies engaged in seaborne trade. This is because oil prices affect shipping rates.
Chinese crude steel production for January was 65.5 million tons, a decline of 4.7% year-over-year and 3.8% month-over-month.
The HSBC Manufacturing PMI (or purchasing managers’ index) for China shows what direction the country’s manufacturing sector is taking.
It’s important to look at iron ore indicators collectively because they give clues about the direction of iron ore prices.
Freeport has the lowest profit margins compared to other copper producers. This could be due to Freeport’s exposure to energy sales.
Last year, Freeport’s Indonesian copper exports were negatively impacted by regulatory changes in Indonesia. However, Freeport signed an MOU with Indonesia.
Indonesia has banned exports of some minerals and levied a mining tax, a hefty export duty, on some ores. Freeport has copper and gold mines in Indonesia.
Freeport has completed asset sales of $5 billion to date. But recently, the company decided to shelve its asset sales.
Lower energy prices prompted energy companies to rethink their business plans. For now, Freeport has shelved plans for significant debt reduction in 2016.
In 2013, Freeport acquired Plains Exploration & Production Company and Moran Exploration Company. Freeport’s debt levels surged post acquisitions.
Freeport is now a major energy producer and thus impacted by lower energy prices. EBITDA will fall $190 million for every $5 per barrel fall in Brent crude.
Lower copper prices are due mainly to the slowdown in the Chinese economy. Chinese copper demand has been a key driver of the global copper industry.
Investors should track aspects of Freeport’s financials such as trends in operating profits. Freeport posted a loss of more than $3 billion in 4Q14.
Freeport’s major markets include North America, which contributes 45% of its revenues. Asia accounts for a fourth and Europe 11% of Freeport’s revenues.
Freeport gets more than half its revenues from copper and more than 10% from gold. It’s among the top three copper producers in the world.
Freeport has shelved its capital expenditure plans for its energy assets. All major energy producers have also cut capital expenditure targets for 2015.
Freeport’s North American operations include seven copper mines and reserves of 35.6 billion pounds of copper and 2.42 billion pounds of molybdenum.
Freeport’s global mining portfolio shows that Freeport has major operations in North America, South America, Africa, and Indonesia.