Freeport Falls as Copper Giant Trims Outlook Amid Metals Rally
(Bloomberg) -- Freeport-McMoRan Inc. fell after the mining giant trimmed expectations for copper sales this year -- even as heightened global demand for the industrial metal fuels a price rally.
Freeport revised its sales volume forecasts for 2021 after posting fourth-quarter profit that topped analysts’ estimates, helped by better-than-anticipated copper and gold sales in the period. The Phoenix-based miner now expects copper sales of 3.8 billion pounds for 2021, down from an October projection of 3.85 billion, while its annual gold sales forecast was pared 7.1% to 1.3 million ounces.
Chief Financial Officer Kathleen Quirk described the guidance changes in Tuesday’s earnings call as “minor revisions” to reflect costs tied to energy, currency and maintenance as the world’s largest publicly traded copper company ramps up operations at its flagship Grasberg mine in Indonesia.
Shares of Freeport fell 7% at 12:52 p.m. trading in New York.
Copper has been soaring since plunging early last year with Chinese and U.S. demand increasing as Covid-19 vaccines are distributed and economies recover, while gold climbed to a record in August. That helped propel Freeport’s earnings in the fourth quarter, with the miner posting net income of $708 million and adjusted per-share earnings of 39 cents to beat the 37-cent average estimate of 17 analysts. Revenue climbed to $4.5 billion, also beating estimates.
“In our opinion, this was a strong quarter from an operational standpoint, with the company outperforming our expectations on both volume and costs,” B. Riley Securities analyst Lucas Pipes said Tuesday in a note to clients.
Freeport said it expects unit net cash costs for copper to be $1.25 per pound, higher than its previous projection for less than $1.20, according to Tuesday’s earnings statement. The company projected in October that costs will decline as it ramps up production at Grasberg and a new operation in Arizona. Freeport also restarted its Chino mine in New Mexico this month at about 50% capacity, after suspending the operations last April due to Covid-19.
Still, Chief Executive Officer Richard Adkerson said during the earnings call that past efforts will enable the company to increase margins and cash flows “substantially” for 2021 and beyond.
“Copper sales are projected to increase 20% over 2020, gold volumes are projected to increase by over 50%. Our unit net cash costs of production will decline,” he said. “This is occurring at a time for improved pricing for copper.”
Adkerson sees copper going “much higher” than $3.50 a pound, though even at that price Freeport is “on the path” to nearly double earnings before interest, taxes, depreciation and amortization, from last year’s levels, he said.
“The significantly higher cash flows will enable us to maintain a strong balance sheet, build value in our business, return substantial cashflows to shareholders,” he said.
Adkerson also reiterated interest in reviving Freeport’s dividend, which it suspended in March to help weather the pandemic.
“Management expects to recommend to the board of directors the resumption of common stock dividends during 2021 and anticipates an ongoing ability to increase cash returns to shareholders in the future,” the company said.
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