Revenues for mining companies such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE) are a function of commodity prices and shipments. Shipments depend on demand from end consumers as well as any portfolio actions by a company.
While commodity prices (RJI) are decided by market forces, they depend on the balance of supply and demand as well as prevailing sentiments. In this part of the series, we’ll look at Freeport-McMoRan’s (FCX) 1Q16 revenues. We’ll then explore if 1Q16 could be the bottom for Freeport’s revenues.
- Freeport-McMoRan reported revenues of $3.5 billion in 1Q16, a year-over-year (or YoY) decline of more than 15%. The graph above shows the falling trend in Freeport’s revenues. Note that Freeport missed consensus revenue estimates. In our pre-earnings analysis, we noted that Freeport might find it hard to beat revenue estimates.
- In 1Q16, Freeport sold 1.1 billion pounds of copper, 17 million pounds of molybdenum, 12.1 MMboe (million barrels of oil equivalent), and 201,000 ounces of gold. Sales volumes fell year-over-year for all commodities except copper. Higher copper volumes are mainly due to the Cerro Verde expansion.
- Freeport-McMoRan reported average realized prices of $2.17 per pound for copper, $1,227 per ounce for gold, and $29.06 per barrel for oil in 1Q16.
Is this the bottom?
According to data compiled by Bloomberg, analysts expect Freeport-McMoRan to post revenues of $3.9 billion and $4.8 billion, respectively, in 2Q16 and 3Q16. This would mean that 1Q16 would mark the bottom for Freeport’s falling revenues. Looking at Freeport’s production guidance and current commodity prices, there’s more upside risk for 2Q16 revenues than downside risk.
Along with revenues, you should also look at Freeport-McMoRan’s profitability. In the next part of the series, we’ll look at the company’s 1Q16 profits.