The Gold Report - Thu, Feb 1, 2018

Major Copper Producer Logs 'Solid' Q4/17 Results

Ralph Profiti, an analyst with Eight Capital, provided an update on this miner, including recent announced quarterly results and guidance.

Copper coils

In a Jan. 26 research note, Eight Capital analyst Ralph Profiti reported that Freeport-McMoRan Inc.'s (FCX:NYSE) "Q4/17 results were solid, with cash costs below expectations and adjusted earnings per share (EPS) at the high-end of consensus," achieving a "positive" impact.

Adjusted EPS was a beat at $0.51, compared to Eight Capital's estimate of $0.36 and consensus' expectation of $0.49.

Copper production in the quarter was in line at 1,007 million pounds (1,007 Mlb). Gold production of 567 thousand ounces (567 Koz) exceeded expectations due to "higher throughout at PT Freeport Indonesia (PTFI), 178 thousand tons per day (178 Ktpd) versus our 159 Ktpd," explained Profiti. Copper sales of 1,107 Mlb met guidance; gold sales, at 593 Koz, did not, coming in 5% lower. Unit net cash costs of $1.04 per pound ($1.04/lb) of copper were lower than the expected $1.07/lb.

Freeport-McMoRan maintains its guidance for FY18, which reflects an anticipated "high-gold year at PTFI," the analyst indicated, with expected sales of 3.9 billion pounds of copper and 2.4 million ounces of gold. Cash costs are forecasted to be $0.97/lb. Capital spending guidance increased some, to $2.1 billion ($2.1B) from $2B. About $1.2B of that budget are allocated for the major Grasberg and Lone Star projects, specifically $850 million for the latter.

The company ended FY17 with less net debt than in Q3/17, $8.7B versus $9.8B, and this should drop further, Profiti purported. "We forecast net debt decreasing to $5.2B by 2018E." These figures compare to peak net debt of $20.48B in Q1/16.

As for the latest on Lone Star, prestripping is underway, and first copper is anticipated by the end of 2020. The oxide project should generate "200 Mlb of annual production for ~20 years" and "advances the potential for development of significant sulfide resources in the long-term," noted Profiti. "Lone Star presents a low-risk opportunity given its proximity to existing Safford infrastructure operations and is capital efficient at $9.4 thousand per ton ($9.4K/ton) of copper equivalent versus [the] industry average [of] ~$15K/ton."

Profiti highlighted that potential value for Freeport-McMoRan exists in its exposure to rising copper and gold prices and its advancement of projects, including El Abra, Cerro Verde and Lone Star. Additionally, the miner "screens as one of the most disciplined capital allocators in the peer group."

Eight Capital currently rates this mining company Neutral.

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