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What Were the Key Drivers of Freeport’s 4Q16 Profitability?


Jan. 26 2017, Updated 4:35 p.m. ET

Freeport’s 4Q16 profitability

Previously, we looked at Freeport-McMoRan’s (FCX) 4Q16 revenue. In this article, we’ll look at key drivers of the company’s 4Q16 profitability.

There are several metrics you can use to measure an enterprise’s profitability, but net profit is widely used. For companies in the commodities space (VALE) such as BHP Billiton (BHP), Teck Resources (TCK), and Southern Copper (SCCO), EBITDA (earnings before interest, tax, depreciation, and amortization) is generally used.

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EBITDA missed estimates

Freeport reported adjusted EBITDA of $1.7 million in 4Q16. In contrast, Freeport posted EBITDA of $0.89 billion in 4Q15 and $1.3 billion in 3Q16. Though Freeport’s 4Q16 EBITDA rose sharply compared to the previous year, it still fell short of analysts’ estimates. Freeport’s lower-than-expected EBITDA can be attributed to its lower volumes, especially in terms of gold volumes at its Grasberg mine. Note that gold is mined as a by-product at several copper mines

Unit cash costs

Freeport’s unit cash costs came in at $1.20 per pound after by-product credits in 4Q16. Because of lower gold volumes, Freeport’s 2016 unit cash costs were higher than its guidance.

The company reported unit cash costs after by-product credits of $1.26 per pound in 2016, compared to its guidance of $1.20 per pound. Freeport had revised its unit cash cost guidance up to $1.20 per pound from $1.05 per pound in its 3Q16 call. Lower mining rates at its Grasberg mine pushed up Freeport’s unit cash costs. 

In the next article, we’ll look at the updates Freeport’s management provided on its Indonesian operations during the company’s 4Q16 earnings call.


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