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How Commodity Prices Could Affect Freeport’s 3Q16 Earnings

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Nov. 20 2020, Updated 2:52 p.m. ET

Commodity prices

Previously, we saw that higher shipments could boost Freeport-McMoRan’s (FCX) 3Q16 revenue. In this article, we’ll see how commodity prices could impact Freeport’s 3Q16 earnings.

In 2Q16, Freeport reported average realized prices of $2.18 per pound for copper, $1,292 per ounce for gold, and $41.1 per barrel for oil.

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Earnings sensitivity

Copper’s price is a key driver for Freeport-McMoRan. The company expects its EBITDA (earnings before interest, tax, depreciation, and amortization) for 2H16 to rise or fall by $325 million for every rise or fall of $0.10 per pound in copper (DBB). Other copper producers such as Southern Copper (SCCO), Rio Tinto (RIO), and Teck Resources (TCK) also have varying sensitivities to copper’s price.

Copper averaged $2.17 per pound in 3Q16, slightly higher compared to the sequential quarter, in which it averaged $2.14 per pound. However, gold averaged $1,335 per ounce in 3Q16, compared to $1,256 per ounce in 2Q16. Energy prices were slightly lower in 3Q16 compared to 2Q16.

Notably, copper has been among the worst performing industrial commodities in 2016. Read Why Copper Has Underperformed Other Metals This Year to learn more about copper’s underperformance compared to other industrial metals.

Positive impact

Higher gold and copper prices should have a positive impact on Freeport’s 3Q16 earnings, offsetting any negative impact from lower energy prices. However, note that the final average selling price will depend on several factors, including the company’s hedging activity and the timing of its sales.

In the next article, we’ll discuss analysts’ projections for Freeport’s 3Q16 profitability.

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