Freeport-McMoRan’s outlook

While copper prices have been weak in 2018, higher gold shipments have helped Freeport-McMoRan (FCX) post higher earnings in the last few quarters. The company posted an adjusted EBITDA of $1.8 billion in the third quarter. The company’s EBITDA in the last 12 months ending on September 30 is $7.9 billion.

Freeport-McMoRan’s Outlook Is Cloudy, Earnings Peak

Shipments

In the last few quarters, Freeport-McMoRan has reported higher gold volumes, which helped it bring down its unit cash costs after by-product credit. Higher gold production has come from Freeport-McMoRan’s Grasberg mine. The company is in the final stages of completing over ground mining at the Grasberg mine.

After strong earnings in the last several quarters, Freeport-McMoRan’s earnings are expected to taper down in the next two years. The company expects its 2019 copper shipments to fall to 3.3 billion pounds from 3.8 billion pounds this year. Copper shipments are expected to average 3.9 billion pounds per year between 2020 and 2022.

Earnings might have peaked

Freeport-McMoRan expects its gold shipments to fall to 0.75 million ounces next year. The company’s gold shipments were 1.6 million ounces last year. The gold shipments are expected to rise to 2.45 million ounces this year. Freeport-McMoRan expects to post an adjusted EBITDA of $4.3 billion in 2019 if copper averages $3.0 per pound. Currently, copper is trading below that price level.

Freeport-McMoRan’s earnings are expected to fall sharply over the next year amid lower copper shipments and higher costs. For copper prices, the outlook doesn’t look quite as strong. Copper will likely face an uphill task getting anywhere near $7,000 per metric ton. Other copper miners’ earnings like BHP Billiton (BHP), Vale (VALE), and Southern Copper (SCCO) are also sensitive to copper prices (XME).

Freeport-McMoRan’s earnings might have peaked in the short term. Higher earnings might only come after 2020, assuming copper prices recover the lost ground by then.

Next, we’ll discuss some other risks that Freeport-McMoRan faces.

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