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Freeport and Glencore: How Their Interest Coverage Ratios Compare

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Interest coverage ratio

In this part, we’ll look at different copper miners’ interest coverage ratios. We can define the interest coverage ratio as a company’s EBITDA (earnings before interest, tax, depreciation, and amortization) divided by its interest expense. The ratio tells us about a company’s ability to make interest payments. A higher ratio is associated with low financial leverage.

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Comparative analysis

Freeport-McMoRan (FCX) has an interest coverage ratio of 7.8x based on its 2017 expected EBITDA and 10.6x based on its 2018 consensus EBITDA. Southern Copper’s (SCCO) interest coverage ratio is 10.6x based on its fiscal 2018 consensus EBITDA. Freeport’s interest coverage ratio is similar to Southern Copper’s. Glencore (GLNCY), the trading and mining giant, has an interest coverage ratio of 10.45x based on its fiscal 2017 expected EBITDA and 12.98x based on its fiscal 2017 consensus EBITDA.

Teck Resources (TECK) has an interest coverage ratio of 19.98x based on 2017 expected earnings and 14.95x based on 2018 consensus estimates. Notably, Teck Resources’ interest coverage ratio is expected to fall next year as analysts are projecting a decline in its 2018 EBITDA.

Diversified miners

Rio Tinto (RIO) and BHP Billiton (BHP) have pretty comfortable interest coverage ratios. BHP Billiton’s interest coverage ratio is 19.17x based on 2017 consensus estimates while Rio Tinto’s interest coverage ratio is 20.15x.

To gauge a company’s financial leverage, we also need to look at some other ratios along with the interest coverage ratio like the DE (debt-to-equity) ratio. In the next part, we’ll provide a comparative analysis of copper miners’ DE ratios.

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