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Key Takeaways from Freeport-McMoRan’s 3Q16 Earnings Call

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Nov. 20 2020, Updated 3:16 p.m. ET

Freeport-McMoRan’s 3Q16 earnings call

During its 3Q16 earnings call, Freeport-McMoRan (FCX) reduced its production guidance. The company expects its 2016 copper shipments to be 4.8 billion pounds, compared to its previous guidance of 5 billion pounds.

Freeport has cut its guidance for gold shipments from 1.7 million ounces to 1.3 million ounces. Furthermore, the company has increased its copper unit cash cost guidance to $1.2 per pound, compared to its previous guidance of $1.06 per pound after by-product credits.

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Lower gold prices and volumes

Note that this lower guidance is likely due to the lower production profile at Freeport’s Grasberg mine. The company has also reduced its assumption of gold prices to $1,250 per ounce from its previous assumption of $1,300 per ounce.

However, as a result of its lower production in 2016, Freeport expects to continue to mine high-grade ore at the Grasberg mine extending into 1Q18. After that, the Grasberg mine, in which Rio Tinto (RIO) (TRQ) is Freeport’s partner, will likely have to be converted into an underground mine.

Asset sales

Miners (GNR) such as Freeport and Teck Resources (TCK) have been working to deleverage their balance sheets. Freeport expects its organic cash flows in 2017 to help it do so.

The company expects its net debt to fall to $10.7 billion by 2017’s end, even if copper prices average $2.0 per pound. During the company’s 3Q16 earnings call, Freeport’s chair Richard Adkerson said that Freeport wouldn’t look at selling more copper mines. The company has raised $6.6 billion in 2016 through asset sale transactions.

However, Freeport may raise cash from its ongoing at-the-money equity sales program. A stake sale of its Indonesia operations is another option Freeport could consider.

Though Freeport has addressed its balance sheet issues, the company faces several other near-term challenges. You can learn more about these challenges in Freeport-McMoRan’s 4Q16 Outlook: Can Its Stock Return to Life?

You can also visit our Copper page for more updates on this industry.

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