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Freeport-McMoRan’s Higher Volumes Offset Low Copper Prices in 1Q

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Freeport’s 1Q earnings

Freeport-McMoRan (FCX) released its 1Q15 financial results on April 23. Although it’s a diversified miner, it still gets more than half its revenues from copper. It’s among the top three copper producers globally. Rio Tinto (RIO) and BHP Billiton (BHP) are some other major copper producers. FCX currently forms 3.1% of the Materials Select Sector SPDR ETF (XLB).

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Higher volumes

The above chart shows the 1Q15 financial performance of Freeport-McMoRan’s (FCX) major segments. As you can see, the segments had higher volumes. Its copper volumes increased ~10% on a year-over-year (or YoY) basis. Freeport’s average realized copper prices declined by more than 13% over this period. Copper prices have been under pressure due to weakness in the Chinese (FXI) economy.

Freeport’s unit cash costs in its copper operations increased by $0.10 per pound. This was largely expected since the company had to face higher royalty rates and export taxes in its Indonesian operations. Last year, the Indonesian government banned the export of unprocessed ores. The government wants more value addition to take place in Indonesia in order to spur employment in the region.

Gold and Freeport

Gold accounts for 10% of Freeport’s revenues. In 1Q15, Freeport’s gold volumes increased more than 40% YoY. The average realized selling price, however, dropped ~9% over this period.

Energy assets have become a crucial part of Freeport’s portfolio. The company has made major investments over the last couple of years to grow its oil and gas exploration business. In the next part, we’ll see how Freeport’s energy business performed in 1Q15.

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