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How Impressive Is Freeport-McMoRan’s 4Q17 Performance?

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Nov. 20 2020, Updated 4:14 p.m. ET

Freeport-McMoRan’s 4Q17 financial performance

Freeport-McMoRan (FCX) reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $2.1 billion in 4Q17. In comparison, the company posted an adjusted EBITDA of $1.61 billion in 3Q17 and $1.68 billion in 4Q16. Freeport’s 4Q17 EBITDA was better than expected. Freeport’s 4Q17 EBITDA is the highest quarterly adjusted EBITDA that it has posted in the last three years. In fiscal 2017, Freeport generated an adjusted EBITDA of $6.0 billion.

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Free cash flows

Freeport generated free cash flows of $1.27 billion in 4Q17, which took its fiscal 2017 free cash flows to $3.27 billion. To put this in context, consider that Freeport posted free cash flows of $916 million in fiscal 2016. You can define “free cash flow” as operating cash flows minus capital expenditure.

Key drivers

As we noted previously, Freeport’s 4Q17 average realized copper prices rose 9.2%—compared to 3Q17. Commodity producers’ earnings like Glencore (GLEN-L) and Antofagasta (ANTO) are sensitive to copper prices. Other copper miners are also expected to report sequentially higher earnings amid higher copper prices (SCCO).

Along with higher average realized copper prices, lower unit production costs also supported Freeport’s 4Q17 financial performance. Freeport reported copper net unit cash costs after by-product credit of $1.04 in 4Q17. In comparison, Freeport’s net unit cash costs were $1.21 per pound in 3Q17 and $1.20 per pound in 4Q16. Lower unit cash costs were mainly led by higher gold production at Freeport’s Grasberg mine in Indonesia (EIDO).

Currently, Freeport is negotiating the terms of the contract to extend its mining permit in Indonesia beyond 2021. Although the company has made some progress, it hasn’t reached a final agreement.

Visit Market Realist’s Metals and Mining page for ongoing updates on the industry.

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