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Metals and mining powerhouse, Freeport-McMoRan Copper & Gold Inc. (FCX - Analyst Report), announced that it would release its results for the third quarter of 2011 before the market opens on October 19, 2011.

Freeport-McMoRanearned a profit of $1.43 per share in the second quarter of 2011, outshining the Zacks Consensus Estimate of $1.34. In the upcoming quarter, the Zacks Consensus Estimate for Freeport is expected to be $1.15 per share, reflecting an annualized decline of 7.92%.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 16.26%, with positive surprises in each of the quarters involved.

Second Quarter Review

Freeport posted excellent net income of $1.37 billion or $1.43 per share in the second quarter of 2011, beating the Zacks Consensus Estimate of $1.34 per share.

Quarterly revenues of $5.81 million surpassed the Zacks Consensus Estimate of $5.63 million and was up 50% year over year.

Consolidated sales from mines totaled 1.0 billion pounds of copper, 356,000 ounces of gold and 21 million pounds of molybdenum compared with 914 million pounds of copper, 298,000 ounces of gold and 16 million pounds of molybdenum in the second quarter of 2010.

Consolidated unit net cash costs (net of by-product credits) averaged $0.93 per pound of copper compared with $0.97 per pound for the second quarter of 2010.  Operating income almost doubled to $2.76 billion from $1.42 billion a year ago.

As of June 30, 2011, total debt was approximately $3.5 billion, translating into a long-term debt-to-capital ratio of 19.6%.

Agreement of Estimate Revisions

Eight out of the 14 analysts covering the stock for the third quarter of fiscal 2011 have made a downward revision in the last 30 days and among them 3 have made downward revisions in the last 7 days. For fiscal 2011, 7 out of 10 analysts have made a downward revision in the last 30 days and 2 have made downward revisions in the last 7 days.

Magnitude of Estimate Revisions

The third quarter of 2011 estimate decreased by 9 cents per share from $1.24 per share in the last 7 days and decreased by 28 cents per share in the last 30 days from $1.43 per share to $1.15 per share.

Our Take

We are optimistic about Freeport’s African Tenke Fungurume copper mining operations, which will optimize costs for Freeport on reaching full production capacity. Rising copper prices, driven by Chinese stockpiling, bode well for the company.

Freeport-McMoRan’s consolidated unit net cash costs (net of by-product credits) are estimated to average $1.01 per pound of copper for 2011 based on average prices of $1,500 per ounce of gold and $15 per pound of molybdenum for the second half of 2011.

Based on the same parameters and assuming average prices of $4.25 per pound of copper, the company’s consolidated operating cash flows are estimated to exceed $8 billion for the year 2011.

The company’s capital expenditures are expected to reach $2.6 billion for 2011, including $1.4 billion for major projects and $1.2 billion for sustaining capital. Major projects for 2011 primarily include underground development activities at Grasberg, construction activities at the Climax molybdenum mine and completion of the initial phase of the sulfide ore project at El Abra.

However, unit net cash costs for 2011 are expected to be higher than 2010, primarily due to the impact of higher unit net cash costs at Grasberg. Unit costs are likely to rise in each of Freeport’s copper-producing segments, reflecting higher input costs. Indonesian operations will likely see the most significant year-over-year increase on a per unit basis due to the drop in volumes that will lessen the ability to absorb the operation’s high fixed costs.

Headquartered in Phoenix, Arizona, Freeport-McMoRan Copper & Gold Inc. is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; as well as the smelting and refining of copper concentrates.

The company conducts its operations primarily through its principal operating subsidiaries, PT Freeport Indonesia, Freeport-McMoRan Corporation (formerly Phelps Dodge) and Atlantic Copper.

Thus, Freeport has a short-term (1 to 3 months) Zacks #4 Rank (Sell) and a long-term Neutral recommendation.

The company faces stiff competition from Newmont Mining Corp. (NEM - Analyst Report) and Southern Copper Corp. (SCCO - Snapshot Report).

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