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In Times When Cash Is King, Where Does Freeport Stand?

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Freeport’s cash flows

Previously, we looked at Freeport-McMoRan’s (FCX) earnings and shipment guidance. However, looking at the current situation, the market is also interested in cash flows. Generating negative free cash flow leads to cash burn, and as a result, companies may have to borrow to fund their deficits.

Most copper producers (BHP), including Glencore (GLNCY), Teck Resources (TCK), and Southern Copper (SCCO), are already grappling with huge debt piles. Negative free cash flows would only make things worse. In this article, we’ll look at Freeport’s 2016 cash flows and the 2017 guidance provided by the company.

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2016 free cash flow

Freeport generated free cash flow of $916 million in 2016. Prior to that, it generated free cash flow of -$3.1 billion in 2015 and $1.6 billion in 2014. The company’s cash-guzzling energy operations compounded its cash flow woes in 2014 and 2015.

2017 guidance

Freeport expects to generate free cash flow of $2.5 billion this year. The guidance assumes copper to be $2.5 per pound and gold to be $1,200 per ounce. It goes without saying that the company’s actual 2017 cash flow will depend on commodity prices. According to the consensus estimates compiled by Thomson Reuters, analysts expect Freeport to post free cash flow of ~$2.4 billion this year.

For now, copper prices have shown strength on the expected uptick in US copper demand coupled with supply side issues. However, as the year progresses, copper may need support from Chinese demand to sustain its recent gains.

Meanwhile, thanks to improved commodity prices and Freeport’s asset sales program, Freeport’s balance sheet looks to be in a much better position heading into 2017. We’ll discuss this position more in the next article.

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