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Why Freeport’s 2017 Guidance Could Be in Disarray

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Nov. 20 2020, Updated 1:24 p.m. ET

Freeport’s 2017 guidance

Freeport-McMoRan (FCX) expects to ship 4.1 billion pounds of copper (GLNCY) (BHP), 2.2 million ounces of gold, and 92 million pounds of molybdenum in 2017. Running at the projected capacity, Freeport’s Indonesian operation is expected to contribute more than 32% to the company’s expected consolidated 2017 copper shipments.

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Key earnings driver

Freeport expects its unit cash costs after by-product credits to average $1.06 per pound in 2017. Its Indonesian operations are expected to be the key driver of the reduction in its 2017 unit cash costs. The company expects its unit cash costs after by-product credits to average -$0.03 per pound in its Indonesian operations.

Since Freeport is expected to mine higher ore grades along with more gold (NEM) from its Grasberg mine this year, its after by-product copper cash costs are expected to be negative in Indonesia. It will have a positive impact on Freeport’s 2017 earnings.

However, Freeport’s 2017 guidance—from top line to bottom line—could be in disarray because of Grasberg issues. We should remember that Freeport missed consensus earnings estimates for the last two consecutive quarters. Lower mining rates at Grasberg drove Freeport’s earnings miss.

What to expect

Along with profitability, Freeport’s debt reduction plan, which is largely expected to be led by organic cash flows this year, would also be impacted due to the Grasberg impasse. Grasberg issues are the key concern for Freeport investors. Commodity markets (DIA) (DOW) improved and Freeport’s balance sheet looks much better thanks to its asset sales program.

Read Freeport-McMoRan’s 2017 Guidance: All You Need to Know to learn more about Freeport’s 2017 guidance.

You can also visit Market Realist’s Copper page for ongoing updates on the industry.

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