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Freeport Investors Need to Brace for Lower Copper Volumes

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Copper volumes

Freeport-McMoRan (FCX) gave a guidance of ~1.3 billion pounds of copper, 410,000 ounces of gold, 20 million pounds of molybdenum, and 11.4 MMboe (million barrels of oil equivalent) for 3Q16. However, Freeport’s actual 3Q16 shipments were lower than its guidance. While its energy sales were slightly higher than its guidance, its gold and copper volumes fell short.

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Volumes lower than expected

At 1.2 billion pounds, the copper volumes were lower compared to Freeport’s guidance. Freeport’s 3Q16 gold volumes of 317,000 ounces also fell short of its guidance by 93,000 ounces. Notably, Freeport missed its gold volume guidance in 2Q16 as well.

Freeport attributed its lower gold and copper volumes to its Indonesia operations (EIDO). We should note that Freeport owns the Grasberg mine in Indonesia. Rio Tinto (RIO) (TRQ) is Freeport’s partner in the mine. Freeport’s Indonesia operations faced labor issues in 3Q16. The labor issues had a negative impact on its production profile. Freeport’s Indonesia operations have been facing several challenges. Read What Issues Does Freeport Face in Indonesia? to find out more.

Lower 2016 guidance 

During its 3Q16 earnings call, Freeport 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. Notably, Southern Copper (SCCO) expects its copper volumes to rise over the next few years as a result of its planned expansions.

Freeport’s fiscal 2017 copper volumes are expected to fall to 4.3 billion pounds—or more than 10% below its expected volumes this year. Lower volumes in 2017 could be attributed to Freeport’s sale of the Tenke Fungurume mine.

Meanwhile, Freeport’s copper volumes could fall even more in 2018. We’ll discuss this in the next part.

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