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Should Freeport Consider a Share Buyback?

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Share buyback

In the previous article, we learned what analysts are projecting for Freeport-McMoRan’s (FCX) third-quarter earnings results.

In this article, we’ll look at the key updates the markets might be expecting on Freeport’s third-quarter earnings call.

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Grasberg

Grasberg concerns have dominated Freeport’s earnings calls for the last several quarters. While Freeport has sorted out the stake sale issue, the environment claims made by the Indonesian government (EIDO) still seem to be unresolved.

During Freeport’s third-quarter earnings call, the markets will likely want to hear about its comments on the Grasberg situation and the progress of its underground operations in Indonesia. The mine is the most crucial asset in Freeport’s portfolio given its low-cost operations.

Capital allocation

Freeport has managed to bring down its net debt from over $20 billion at the beginning of 2016 to $7.3 billion as of the second quarter’s end. The company has a comfortable net debt-to-trailing-12-month EBITDA multiple of 0.9x. So far, deleveraging has been Freeport’s priority. However, given the current slide in its stock price and its strong cash holdings, the company could face questions about a possible share buyback during its third-quarter earnings call.

Other miners, including Rio Tinto (RIO), Vale (VALE), and BHP Billiton (BHP), have also announced share buybacks. Meanwhile, the key question is whether a share buyback would make strategic sense for Freeport. We’ll discuss this matter in the next article.

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