Freeport-McMoRan (NYSE: FCX) - American mining company, world's largest copper producer. The enterprise is unique in, what is spent on the production of order 1,88 $ per pound at the current market price of the metal over 4 $.
About company
Freeport-McMoRan mines copper, gold and molybdenum. Another small income of the company comes from the extraction of cobalt and silver., which in the report relates to other revenue.
Copper. The main source of income for Freeport-McMoRan is the mining and sale of copper. Key consumers of copper are the construction sector and the electrical industry. Copper has a high electro- and thermal conductivity, plasticity and corrosion resistance. In the future, the company expects increased demand from electric vehicle manufacturers., charging stations and the renewable energy industry.
Gold. Second most important metal for Freeport-McMoRan, most of which is mined in Indonesia. The company sells gold as a component of copper concentrate or as sludge.
Molybdenum. The smallest metal in the company's income. Used in steel, chemical and electrical industry due to its properties: good heat resistance, heat resistance and high elasticity.
Assets. Total Freeport-McMoRan 12 production facilities, which the company divides into three divisions on a geographical basis:
- North American fields - these include nine objects, of which three are copper, two molybdenum and four copper-molybdenum.
- South American segment - consists of two complexes: Peruvian and Chilean. Both are open pit mining, but if the former produces copper and molybdenum, then the second is only copper.
- Indonesian asset - it includes the Grasberg mining area, which includes open pit and underground mines, mining copper and gold. The Indonesian asset operates as a joint venture between Freeport-McMoRan and state-owned Indonesia Asahan Aluminum.
Income structure. Taking into account the current production rates and resource reserves of the company, the enterprises have more than 20 years provided with own raw materials.
The structure of the company's income, billion dollars
| Revenue | share | |
|---|---|---|
| Copper | 5,166 | 85% |
| Gold | 0,741 | 12% |
| Molybdenum | 0,372 | 6% |
| Other revenue | 0,210 | 3% |
| Adjustments | −0,406 | −6% |
Metals sales dynamics
| 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|
| Copper, billion pounds | 3,2 | 3,8 | 4,4 | 4,4 |
| Gold, Moz | 0,9 | 1,3 | 1,6 | 1,8 |
| Molybdenum, million pounds | 80 | 85 | 80 | 80 |
Raw material reserves
| Copper, billion pounds | Gold, Moz | Molybdenum, billion pounds | |
|---|---|---|---|
| North America | 47,1 | 0,6 | 3,01 |
| South America | 32,7 | 0 | 0,7 |
| Indonesia | 33,4 | 28,3 | 0 |
| General | 113,2 | 28,9 | 3,71 |
Growth point. Freeport-McMoRan expects significant growth in production and sales by 2023: copper - on 38%, gold - on 100% year to year. The company plans to achieve such impressive results by increasing the capacity of its Indonesian asset — Grasberg.
Grasberg production forecast
| Copper, billion pounds | Gold, Moz | |
|---|---|---|
| 2020 | 0,8 | 0,84 |
| 2021 | 1,33 | 1,3 |
| 2022 | 1,6 | 1,6 |
| 2023 | 1,7 | 1,8 |
| 2024 | 1,6 | 1,7 |
| 2025 | 1,5 | 1,6 |
Forecast for 2022. The company's management presented its forecast for EBITDA and operating cash flow, which indicates, how much these values will change with an increase or decrease in the cost of copper. The cost of gold and molybdenum in these calculations is fixed at the level 1800 $ per ounce and 19 $ per pound.
Forecast for 2022 with varying average copper prices per pound, billion dollars
| Copper cost | EBITDA | Operating cash flow |
|---|---|---|
| 4 $ | 12,825 | 9 |
| 4,5 $ | 15 | 10,65 |
| 5 $ | 17,175 | 12,3 |
Growth of results with a certain deviation of parameters, million dollars
| Average price deviation | EBITDA | Operating cash flow | |
|---|---|---|---|
| Copper | ±0,1 $ per pound | ±435 | ±330 |
| Molybdenum | ±1 $ per pound | ±80 | ±70 |
| Gold | ±50 $ per ounce | ±80 | ±55 |
| Local currencies | ±10% | ±200 | ±140 |
| Diesel | ±10% | ±70 | ±50 |
Dividends
Dividend payouts are not Freeport-McMoRan's strong point. The company pays a small portion of the profit to shareholders, and in some years nothing at all: for example, There were no payments in 2016 and 2017.
Dynamics of dividend payments
| 2011 | 1,5 $ |
| 2012 | 1,1875 $ |
| 2013 | 2,25 $ |
| 2014 | 1,25 $ |
| 2015 | 0,573 $ |
| 2016 | 0 $ |
| 2017 | 0 $ |
| 2018 | 0,15 $ |
| 2019 | 0,2 $ |
| 2020 | 0,05 $ |
| 2021 | 0,225 $ |
1,5 $
Current results
Freeport-McMoRan is a commodity company, therefore, its financial performance is strongly linked to copper prices: she brings about 85% total income. In the next three years, if the current market situation persists, the company will show record results thanks to its powerful production plan until 2023.
Freeport-McMoRan Financial Results, billion dollars
| Revenue | EBITDA | Net profit | net debt | |
|---|---|---|---|---|
| 2016 | 14,830 | −0,182 | −4,154 | 11,782 |
| 2017 | 16,403 | 5,347 | 1,817 | 8,670 |
| 2018 | 18,628 | 6,508 | 2,602 | 6,980 |
| 2019 | 14,402 | 2,503 | −0,239 | 7,806 |
| 2020 | 14,198 | 3,965 | 0,599 | 6,054 |
| 9м2021 | 16,681 | 7,491 | 3,200 | 1,993 |
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| Freeport-McMoRan | 5,96 | 14,19 | 0,21 |
| MMC Norilsk Nickel | 4,65 | 5,83 | 0,67 |
| Vale | 2,28 | 3,80 | 0,07 |
| Barrick Gold | 4,71 | 17,29 | 0,02 |
| Southern Copper | 7,83 | 14,61 | 0,62 |
Arguments for
Strong current environment. In 2021 thanks to, that copper prices are near their multi-year highs, Freeport-McMoRan Delivers Record Financial Results, which greatly improved the financial stability of the company: net debt of the company is close to zero, and the stock of money in the accounts is already about 8 billion dollars.
Low debt burden. The company's net debt has decreased from $6.054 billion to $1.993 billion since the beginning of the year, while the net debt / EBITDA ratio for the same period decreased from 1,53 to the absolute minimum of the company over the past few years - 0,21.
Production forecast until 2023. According to management forecast, By 2023, it is planned to increase copper production by 38% compared to 2020 and gold on 100%.
Inventory problems. In October 2021, copper prices rose by 15% from the deficit, listed on the London Metal Exchange. Inventories of copper in warehouses fell to 14 150 tons - the lowest figure since 1998. Now the situation has stabilized.
Arguments against
Low dividend payments. Freeport-McMoRan is extremely reluctant to share profits with its shareholders. But already in 2022, the situation should improve significantly - for this, the company launches a $3 billion buyback and more than doubles its annual dividends., to 0,6 $.
US President's policy. Joe Biden, unlike its predecessor, Donald Trump, pays more attention to environmental issues, therefore, his administration from time to time puts spokes in the wheels of commodity companies. Antofagasta and its new copper-nickel mine have already suffered from this., Keystone XL oil pipeline, Resolution Copper mine and other assets. Given the position of the president and society, Freeport-McMoRan may face similar regulatory restrictions in the future when developing new sites.
Copper is too expensive. For the past ten years, a pound of copper has averaged around 3 $, and now almost 50% above this value, approx. 4,35 $.
What's the bottom line?
Freeport-McMoRan boasts low multipliers, low debt load, growth in production volumes and a new buyback program. Should I buy stocks now or is it better to wait for copper prices to decline to average values 3 $? Better, certainly, choose the second option, but it is not suitable for all investors, because, maybe, will have to wait a long time.
