Freeport-McMoRan (FCX, Financial) that has faced many headwinds. Ups and down in copper prices, declining gold and oil prices along with harsh government actions and growing competitive threats impacted its results for the third-quarter 2014. Its revenue dropped about 8%, while its earnings fell down approximately 33% for the quarter. The ceiling-test write-down on its oil and gas properties impacted its net income by roughly $192 million.
However, the company looks pretty good on the recent correction in copper prices that should accelerate its growth going forward. Also, it is seeing growing consumption for copper across the world despite a not-so-friendly economic environment. It expects the copper market demand to improve worldwide in the future that should augment its top as well as bottom-line performance in the long run.
Positives to consider
The demand looks very positive. As per the International Copper Study Group, the world apparent refined copper demand is expected to exceed refine copper demand by about 300,000 metric tons. Further, the report validates correction in the copper market after five year of apparent deficits with increase in production surplus to that of demand.
In addition, the report also expect the world apparent refined demand to increase about 4% from that in 2013 to 22.4 metric tons due to tightness in the scrap market. Also, the apparent demand is expected to grow around 7% in 2014 in China and 3.5% in rest of the world.
Freeport-McMoRan has strong portfolio of assets that should help the company take advantage of this correction in the copper market. It remains quite upbeat to generate profit at the prevailing market price for copper. It has copper over 100 billion pounds of verified and probable reserves reported under SEC standard. In addition, the company has identified an incremental 100 billion of mineral resources with its existing properties. It is at present engaged exploiting these mineral resources that should enhance its profitability in the long-run.
Improving its operations
Moreover, the maker of copper is ramping up production at its facilities across the world. It expects its Morenci mine expansion to reach full rates by the end of this calendar year. This expansion at its Morenci mine with better rates should enhance its copper production going forward. Additionally, The Cerro Verde mine continues to enhance its production. It is currently expanding its Cerro Verde mine, whose output is expected to triple starting from calendar year 2016. It is progressing well with its expansion project that costs around $4.05 billion. The company expects this project to commence its production at the beginning of fiscal 2016.
Freeport-McMoRan expects this expansion at both of these projects to increase its overall copper production volume by 20%. These projects have high grades of both copper and gold. The company projects these projects to deliver approximately 4 billion to 5 billion starting 2016. These low-cost high grade mines in North America should create value for shareholders in the future.
In addition, the company is making significant progress with its oil and gas businesses. It has great oil assets with California and Deepwater Gulf of Mexico that are accelerating its total production. The company expects these mines to continue perform well over the years. In addition, it has done away with the initial production test at its Highlander discovery, which is expected to go online at the start of 2015. Freeport-McMoRan expects this highlander discovery to yield daily production of approximately 43 million cubic feet gas per day. This should undeniably accelerate top as well as bottom line performance going forward.
Conclusion
Freeport-McMoRan is making great moves. The company has expanded its copper production outside of Indonesia. Also, it is developing great energy assets in Gulf of Mexico. These efforts should drive its bottom line performance going forward. The analysts expect its earnings to grow at CAGR of 37.76% higher than average industry CAGR of 17.07% for the next five years. This displays potential earnings growth for the stock in the long-run.
The stock is a little expensive and trades at trailing P/E of 10.96 and forward P/E of 11.11. However, looking at its growth potential its worth purchasing as its earnings will certainly grow once the copper, gold, gas and oil prices pick up. Moreover, it has PEG ratio of 0.28 for the next five years that continues to support its growth in the future. It has profit and operating profit margins of 10.19% and 24.22% respectively for trailing twelve months. Its balance sheet carries total cash of $658.0 million and total debt of $19.74 billion.
