Freeport-McMoRan (FCX), the leading US-based copper miner (XME), saw a selling spree after its first-quarter earnings were released. The company missed the mark on most of its metrics from shipments to the net profit. However, the stock rose 2.4% on April 26—the day after its earnings release.
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Looking at Freeport-McMoRan’s valuation multiples, based on its 2019 and 2020 estimates, the stock looks expensive compared to most of its peers. Freeport-McMoRan has a 2019 EV-to-EBITDA multiple of 9.3x. BHP Billiton (BHP) and Rio Tinto (RIO) have 2019 EV-to-EBITDA multiples of 6.1x and 5.3x, respectively. Southern Copper (SCCO), which has traded at a premium over Freeport-McMoRan in the last few years, has a 2019 EV-to-EBITDA multiple of 9.05x.
When valuing Freeport-McMoRan, it wouldn’t be prudent to look at the 2019 and 2020 multiples. For Freeport-McMoRan, 2019 and 2020 are transition years as it ramps up the underground operations at its Grasberg mine. Freeport-McMoRan’s 2021 EV-to-EBITDA multiple of 4.8x is the lowest among the companies that we’re discussing in this part.
2021 operating plan
Freeport-McMoRan expects its copper shipments to rise to 4.2 billion pounds in 2021 from 3.3 billion pounds in 2019. The company’s copper unit cash cost after byproduct credit is expected to fall to $1.30 per pound in 2021 from $1.75 per pound in 2019. Even assuming an average copper price of $3.0 per pound, Freeport-McMoRan should generate an EBITDA of more than $7 billion in 2021 compared to ~$4 billion this year at the same average copper price.
Based on the above analysis, Freeport-McMoRan looks to offer long-term value. However, given the economic uncertainty, the markets seem more focused on Freeport-McMoRan’s short-term outlook.