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What Drove Freeport’s 2Q17 Profits and Cash Flows?

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Jul. 26 2017, Updated 10:42 a.m. ET

Freeport’s 2Q17 earnings

Previously, we looked at Freeport-McMoRan’s (FCX) 2Q17 revenues. In this part, we’ll look at some of the other financial metrics. Specifically, we’ll see how much EBITDA (earnings before interest, tax, depreciation, and amortization) and free cash flows Freeport managed to generate in 2Q17.

Freeport posted an adjusted EBITDA of $1.2 billion in 2Q17. The company posted an adjusted EBITDA of $1.0 billion in 1Q17. Freeport generated free cash flows of $675 million in 2Q17, which took its 1H17 free cash flows to $1.1 billion. The company’s 2Q17 EBITDA and cash flows rose on a sequential basis.

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Key drivers

As we noted in the previous part, Freeport’s 2Q17 average realized copper prices were lower compared to 1Q17. However, lower copper prices were more than offset by higher shipments. Since the incremental shipments have come from Freeport’s Indonesia operations, which are the lowest cost operations, we saw a reduction in Freeport’s unit cash costs.

Freeport reported copper after a by-product unit cash cost of $1.20 per pound in 2Q17—compared to $1.39 per pound in 1Q17. More shipments from its low-cost Grasberg mine had a favorable impact on Freeport’s 2Q17 earnings. However, since Freeport lowered its production guidance from the Grasberg mine, the company expects its copper after by-product unit cash cost to average $1.19 per pound in 2017. Previously, the company expected its cash cost after by-products to average $1.08 this year.

The Grasberg mine (EIDO), where Rio Tinto (RIO) is Freeport’s partner, has been facing a labor impasse. Notably, some of the other leading copper mines including those owned by BHP Billiton (BHP) and Southern Copper (SCCO) have also faced labor issues this year. Not surprisingly, Grasberg issues dominated Freeport’s 2Q17 earnings call.

In the next part, we’ll analyze key takeaways from Freeport’s 2Q17 earnings call.

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