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Why Freeport’s Copper and Gold Volumes Could Fall in 2019

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Volumes

Freeport-McMoRan (FCX) expects to produce 3.7 billion pounds of copper this year. The company produced 4.7 billion pounds of copper last year. Looking at Freeport’s long-term guidance, we see that the company expects to produce 3.9 billion pounds of copper next year. Freeport’s annual copper production is expected to average 3.7 billion pounds between 2019 and 2021. However, in 2019, Freeport’s copper production is expected to be below average at ~3.5 billion pounds. Glencore (GLEN-L), Southern Copper (SCCO), and First Quantum Minerals (FM) could report a yearly rise in their 2019 copper production profiles.

Similarly, in gold (NEM), Freeport expects its shipments to rise to 2.4 million ounces next year from 1.6 million ounces this year. However, the company expects its gold shipments to average 1.2 million ounces between 2019 and 2021 with 2019 gold shipments expected at 1 million ounces. As you can see, Freeport’s copper, as well as gold volumes, could rise on a yearly basis next year before falling in 2019. Let’s see why Freeport expects its volumes to taper off in 2019.

Grasberg

Freeport is converting its Grasberg mine into underground operations. The process has taken longer than expected due to persistent issues facing the mine that have negatively impacted its production profile. As the mine is reaching the end of its open pit operations, Freeport has access to high-quality copper ore as well as higher gold content.

However, as the mine transitions to close pit operations, we could see a decline in Freeport’s gold volumes. Having said that, the future of Freeport’s Indonesia operations is still hazy, given its ongoing negotiations with the Indonesian government.

In the next part of this series, we’ll see how analysts see Freeport’s earnings shaping up in the medium to long term.

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