What’s the Biggest Risk to Freeport’s 2017 Guidance?



Freeport’s 2017 guidance

As noted previously, Freeport-McMoRan (FCX) expects its copper shipments to fall on a yearly basis in 2017, and it expects its gold and molybdenum shipments to rise year-over-year (or YoY). 

In this article, we’ll analyze the factors that could impact Freeport’s 2017 guidance.

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Production breakup

The graph above shows a country-wise breakup of Freeport’s copper shipments. In 2016, Freeport’s North American and South American operations accounted for 40% and 29% of its consolidated copper shipments (BHP) (SCCO), respectively. Freeport’s Indonesian operations accounted for 22% of its 2016 copper shipments, and the remaining 9% of sales came from its mines in Africa.

However, Freeport’s geographical production mix is expected to change in 2017. This year, Freeport expects to ship 1.5 billion pounds of copper from its North American mines, which would be ~36% of its expected consolidated copper shipments. Freeport’s Indonesian operations are expected to ship 1.3 billion pounds of copper in 2017, more than 32% of the company’s expected consolidated copper shipments.

Indonesian operations

The share of Indonesian operations in Freeport’s consolidated shipments is expected to rise for two reasons. Firstly, Freeport has sold a minority stake in its Morenci mine in North America and a complete stake in its African mines. Secondly, Freeport’s Grasberg mine (RIO) (TRQ) in Indonesia is nearing the completion of its open-pit mining operations. As a result, the company is now mining high-grade ore with high copper content.

However, Freeport’s Indonesian operations have been facing issues over the last few years, including the current export ban. Indonesian issues could be the biggest challenge Freeport will face in meeting its 2017 shipment guidance.

In the next article, we’ll look at Freeport’s 2017 unit cash guidance.


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