Freeport-McMoRan Copper & Gold Inc.
(FCX - Analyst Report
) reported earnings of 68 cents per share for fourth-quarter 2013, a decline of roughly 13% from the year ago earnings of 78 cents. Profit fell 4.8% year over year to $707 million, hurt by lower pricing.
The results include net charges of 16 cents per share related to unrealized losses on oil and gas derivative contracts and other items. Barring that impact, earnings were 84 cents a share in the fourth quarter, beating the Zacks Consensus Estimate of 82 cents.
Revenues surged roughly 30% year over year to around $5.89 billion in the fourth quarter, but missed the Zacks Consensus Estimate of $6.47 billion. Sales were partly aided by the company’s acquisition of oil and gas business.
Consolidated sales from mines increased to 1.14 billion pounds of copper in the fourth quarter from 972 million pounds in the year ago quarter due to increased sales throughout Freeport's global mining operations. Sales of gold more than doubled to 512,000 ounces in the reported quarter from 254,000 ounces a year-ago on higher ore grades and improved operating performance in Indonesia.
Sales of molybdenum increased to 22 million pounds in the reported quarter from 21 million pounds in the fourth quarter of 2012.
For full-year 2013, earnings were $2.64 per share, down 17% from $3.19 per share recorded in 2012. The results topped the Zacks Consensus Estimate of $2.55. Profit (as reported) totaled $2.7 billion versus $3 billion in 2012.
For full-year 2013, revenues increased 16% to $20.9 billion from $18 billion in 2012, but fell short of the Zacks Consensus Estimate of $21.5 billion.
Consolidated average unit net cash costs (net of by-product credits) decreased to $1.16 per pound of copper in the quarter from $1.54 per pound a year ago, mainly attributed to higher copper and gold volumes and the company’s cost control measures.
Average realized price per ounce for gold fell to $1,220 per ounce from $1,681 per ounce a year ago while average realized price per pound for copper declined to $3.31 per pound of copper from $3.60 per pound of copper in the prior-year quarter.
North America Copper Mines: Copper sales at the mine increased 4% year over year to 334 million pounds and production rose 7.5% to 385 million pounds in the reported quarter. Sales increased due to higher ore grades and recovery rates. Freeport expects copper production to be 1.73 billion pounds in 2014, up from 1.42 billion in 2013 resulting from higher production from Morenci following the completion of the mill expansion project.
South America Mining: Copper sales of 402 million pounds rose 14.8% from the year ago quarter mainly due to increased production at Candelaria and timing of shipments. Gold sales surged 30.7% to 34,000 ounces. Copper production rose 8.6% to 379 million pounds in the reported quarter and gold production jumped 19.2% to 31,000 ounces in the quarter.
Indonesia Mining: Copper sales of 292 million pounds increased 43.2% from the year ago quarter while production jumped 52% to 304 million pounds. Gold sales increased 252,000 ounces to 476,000 ounces due to higher ore grades and increased mill rates and production increased 281,000 ounces year over year to 502,000 ounces in the reported quarter.
Africa Mining: Copper sales of 112 million pounds represent a year over year increase of 15.4%, reflecting higher mining and milling rates and higher ore grades. Production increased 13.38% to 111 million pounds in the quarter. During the second half of 2013, the mine faced several power interruptions, which impacted operating rates. Freeport is continuing its work with the power provider and DRC authorities to address the problem.
Molybdenum: Molybdenum production of 12 million pounds in the fourth quarter was lower than fourth-quarter 2012 production of 13 million pounds. Weak demand in the metallurgical sector and high supply led to the decline. in Freeport will make requisite adjustments to its primary molybdenum production after reviewing the market conditions.
Freeport had cash and cash equivalents of $1,985 million as of Dec 31, 2013, compared with $3,705 million as of Dec 31, 2012. Freeport had long-term debt of $20.4 billion as of Dec 31, 2013, compared with $3.5 billion as of Dec 31, 2012.
Freeport’s operating cash flows were $2.3 billion in the fourth quarter and $6.1 billion in 2013. Capital expenditures totaled $1.7 billion in the reported quarter and $5.3 billion in 2013. Capital expenditures in the fourth quarter includes $523 million for oil and gas operations $1.45 billion for the seven-month period starting Jun 1, 2013 to Dec 31, 2013.
Oil and Gas Operations (FMO&G)
In May and early June, Freeport completed the acquisitions of Plains and McMoRan Exploration and formed a premier U.S. based natural resource company collectively called FM O&G, and added a high quality portfolio of U.S.-based oil and gas assets to its global mining business.
In the fourth quarter, realized revenues for oil and gas operations were $1.2 billion ($73.58 per barrels of oil equivalents/BOE). For the seven month period following the acquisition date, realized revenues for oil and gas operations totaled $2.9 billion ($76.87 per BOE).
For 2014, Freeport expects consolidated sales from mines of 4.4 billion pounds of copper, 1.7 million ounces of gold, 95 million pounds of molybdenum and 60.7 million barrels of oil equivalents (MMBOE).
For the first quarter, the company expects 1 billion pounds of copper, 325,000 ounces of gold, 25 million pounds of molybdenum and 15.3 MMBOE.Consolidated unit net cash costs are expected to fall in 2014, versus the 2013 average, as Freeport gains access to higher grade ore in Indonesia.
The impact of price changes on 2014 consolidated unit net cash costs would be roughly 2 cents per pound for each $50 per ounce change in the average price of gold and 2 cents per pound for each $2 per pound change in the average price of molybdenum.
Assuming average prices of $1,200 per ounce of gold and $9.50 per pound of molybdenum and attainment of current sales volume and cost targets, consolidated unit net cash costs (net of by-product credits) for Freeport's copper mining operations are expected to average $1.45 per pound of copper for 2014.
For 2014, capital expenditures are expected to be roughly $7 billion, including $3 billion for major projects at mining operations and $3 billion for oil and gas operations
Freeport currently retains a short-term Zacks Rank #3 (Hold).
Other mining companies with favorable Zacks Rank include General Moly, Inc.
(GMO - Snapshot Report
), Stillwater Mining Co
. (SWC - Snapshot Report
) and Atlatsa Resources Corporation
. While both General Moly and Stillwater Mining hold a Zacks Rank #1 (Strong Buy) Atlatsa Resources carry a Zacks Rank #2 (Buy).