Freeport-McMoRan’s 3Q15 Margins Fall on Lower Commodity Prices




Previously in this series, we’ve explored the trend in Freeport-McMoRan’s (FCX) sales profile and unit production costs. We’ve also noted that the company’s average selling prices dropped in 3Q15 on falling commodity (COMT) prices. In this part, we’ll look at the trend in Freeport-McMoRan’s cash operating margins. Cash operating margins are a key metric for mining companies, including Teck Resources (TCK) and Turquoise hill Resources (TRQ).

Currently, Freeport-McMoRan forms 0.08% of the SPDR S&P 500 ETF (SPY).

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Energy margins drop

  • Freeport-McMoRan recorded a cash operating margin of $24.15 per BOE (barrel of oil equivalent) in its energy business. In 2Q15, the company had a cash operating margin of $31 per BOE.
  • Although Freeport-McMoRan has been able to bring down its unit cash costs in the energy business, its average realized prices fell at an even steeper pace. This fall resulted in lower operating margin per BOE.
  • The energy business generated an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $304 million in 3Q15 compared to $368 million in the previous quarter.
  • On a consolidated basis, Freeport-McMoRan generated an adjusted EBITDA of $937 million. In 2Q15, Freeport-McMoRan had posted an adjusted EBITDA of $1.2 billion.


  • Freeport-McMoRan expects to cut its unit cost costs in its copper operations by more than 20% next year. If copper prices don’t fall, the company’s operating margins in copper could expand next year.
  • According to Freeport-McMoRan, it’s reviewing its copper operations with an assumption of $2-per-pound copper prices. The company wants to ensure that it can be cash-flow-profitable at $2-per-pound copper prices.

Freeport-McMoRan’s surging debt levels and falling operating cash flow have been a concern for investors. In the next part of this series, we’ll discuss Freeport-McMoRan’s 3Q15 performance on these metrics.


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