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What Freeport-McMoRan’s Strong Cash Flows Mean for Investors

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Nov. 20 2020, Updated 5:00 p.m. ET

Cash flows

In this part of our series, we’ll look at copper miners’ first-quarter free cash flows and look at the 2018 cash flow guidance. You can define free cash flows as operating cash flows minus capital expenditure (or capex). It’s a key metric that investors in metal and mining companies should track.

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Comparative analysis

Southern Copper (SCCO) reported free cash flows of $354 million in the first quarter, compared to $383 million in the sequential quarter. First Quantum Minerals (FM) generated free cash flows of $357 million in the first quarter. Before that, the company generated negative free cash flows for six consecutive quarters. First Quantum is investing in expanding its capacity that’s leading to higher capex.

Freeport-McMoRan

Freeport-McMoRan (FCX) generated free cash flows of $967 million in the first quarter. The company reported free cash flows of $3.3 billion in 2017 and $1.1 billion in 2016. Strong free cash flow generation helped Freeport-McMoRan lower its debt burden. The company reported net debt of $7.9 billion as of March 31. To put this amount in context, consider that Freeport-McMoRan’s net debt was higher than $20 billion at the beginning of 2016. Freeport-McMoRan expects its net debt to fall to $6.1 billion by the end of the year if copper prices average $3.0 per pound. Let’s now see what higher free cash flows mean for the company’s investors.

Freeport-McMoRan has already restored its annual dividend amid falling leverage ratios and improved commodity prices (VALE). Glencore (GLNCY) has also restored its dividend and adopted a variable dividend policy. The company could use its free cash flows for further deleveraging or investing in growth projects, or it could even look at returning cash to shareholders. See Freeport-McMoRan: What to Expect Moving Forward for a detailed analysis of the company’s near-term drivers.

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