2023-10-04 10:13:48 ET
Summary
- Freeport-McMoRan's second quarter 2023 results exceeded expectations with a profit of $343 million and adjusted earnings per share of $0.35.
- Revenues increased by 5.9% year over year to $5,737 million in Q2'23, driven by higher production despite lower copper prices.
- The company's stock performance has slightly outperformed the COPX ETF, and long-term investment in Freeport-McMoRan is recommended due to its focus on gold and copper mining.
- I recommend buying FCX between $36.25 and $35.6 with possible lower support at $34.5.
Introduction
The Phoenix-based Freeport-McMoRan (FCX), the world's largest publicly traded copper company, released its second quarter 2023 results on July 20, 2023.
Note: This article updates my preceding article, published on June 24, 2023. I have been following Freeport-McMoRan since Sept. 2019.
CEO Richard Adkerson said in the conference call :
The positive second-quarter results, at the outlook we're reporting today, reflect that our operational performance has been in line with our plans and our prior guidance.
Note: I strongly recommend reading my October 1, 2023, article about Southern Copper (SCCO) by clicking here .
1 - Second Quarter 2023 Results Snapshot
Freeport-McMoRan posted a quarterly profit of $343 million or $0.23 per share , beating analysts' expectations. Adjusted earnings per share came in at $0.35 per share. Below are the results and production snapshot for Q2'23 from the presentation .
FCX 2Q Highlights (FCX Presentation)
Revenues increased 5.9% year over year to $5,737 million in Q2'23 . Lower Copper prices, but higher production helped Freeport-McMoRan results in Q2'23.
Consolidated production totaled 1,067 billion pounds of copper , 483 thousand ounces of gold , and 21 million pounds of Molybdenum in the second quarter of 2023. Unit cash cost per Cu Lbs was $1.47 in Q2'23 , a little better than our guidance of $1.51 per pound.
Below is a summary of the notable operational highlights in Q2'23.
Note: A lot is going on with Grasberg that should be the subject of another article soon.
FCX Notable Operations in Q2'23 (FCX Presentation)
Consolidated sales from mines were 1,029 million pounds of copper . The company sold 495K ounces of gold and 20 million pounds of Molybdenum in the second quarter.
CFO Kathleen Quirk said in the conference call:
As we move through the year, we're continuing to experience improving cost trends for several of our commodity-based input costs, and we're seeing more stability in labor, services and equipment component costs.
2 - Stock Performance
Freeport-McMoRan has slightly outperformed the Global X Copper Miners ETF (COPX). FCX is now up 33% in one year, underperforming SCCO.
3 - Investment Thesis
Investing long-term in FCX is a tempting idea if you believe copper has a bright future, as I do, even if 2023 may turn inconclusive for the metal. I think the company's stock will perform well in the long term, and I have owned FCX for many years.
Freeport-McMoRan presents a solid business model from an investor perspective, focusing on gold and copper mining.
The company is one of the most prolific producers of copper and produces a significant amount of gold from its Grasberg mine in Central Papua, Indonesia. According to Statista, Freeport-McMoRan was the second-largest copper producer in 2022.
FCX Q2'23 Production Details (FCX Presentation)
FCX is subject to China for business, with strong demand expected for copper. Unfortunately, the rebound that many analysts predicted confidently earlier this year has been more than offset by higher supply. Copper is up 6% YoY, down significantly from its high in February.
Furthermore, Gold prices fell over $100 per ounce since September after the U.S. dollar and bond yields rallied after the Federal Reserve warned investors it would apply another rate hike in 2023.
FCX 1-Year Chart Gold and Copper Prices (Fun Trading StockCharts)
Unfortunately, the third quarter of 2023 will not be stellar, and the stock will continue to suffer some selling pressures.
Thus, the strategy that I recommend is to trade 50% LIFO of your total position. It will let you keep a core long-term position for higher ground and enjoy a secure dividend yield of 1.59% , which hopefully will be higher in 2024. By trading LIFO, you always sell the most recent purchases, whereas your core long-term is untouched.
Freeport-McMoRan - Q2'23 - Balance Sheet and Trend History - The Raw Numbers
Freeport-McMoRan | Q2'22 | Q3'22 | Q4'22 | Q1'23 | Q2'23 |
Total Revenues in $ Million | 5,416 | 5,003 | 5,758 | 5,389 | 5,737 |
Net income in $ Million | 840 | 404 | 697 | 663 | 343 |
EBITDA $ Million | 2,262 | 1,515 | 2,188 | 2,088 | 1,986 |
EPS diluted in $/share | 0.57 | 0.28 | 0.48 | 0.46 | 0.23 |
Cash from Operations | 1,621 | 758 | 1,069 | 1,050 | 1,673 |
Capital Expenditure In $ Million | 863 | 836 | 1,047 | 1,121 | 1,163 |
Free Cash Flow in $ Million | 758 | -78 | 22 | -71 | 510 |
Total Cash $ Million | 9,492 | 8,578 | 8,146 | 6,852 | 6,683 |
Total Long-term Debt in $ Million | 11,092 | 10,690 | 10,620 | 9,635 | 9,495 |
Quarterly Dividend $/share | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 |
Shares outstanding (diluted) in Billion | 1,457 | 1,435 | 1,439 | 1,443 | 1,442 |
Source: Company news
Analysis: Revenues, Free Cash Flow, Mineral Reserves, and Copper/Gold/Molybdenum Production
1 - Revenues were $5.74 billion for the second quarter of 2023
FCX Quarterly Revenue History (Fun Trading) The second quarter of 2023 revenue was $5.737 billion , up 5.9% from the same quarter a year ago and up 6.5% sequentially.
The net income was $343 million or $0.23 per diluted share , compared to $840 million or $0.57 in the same quarter a year ago.
The adjusted net income attributable to common stock was $0.35 per share.
One critical element when it comes to FCX is the copper price. The average was 3.84 per pound in Q2'23 , down 4.7% year over year. However, the copper price dropped significantly more recently and trades now at $3.62 per pound and seems to be weakening further.
FCX Quarterly Copper Price History (Fun Trading) FCX 6-month Chart Copper Price Zitco (ZItco)
2 - Free cash flow was $510 million in the second quarter of 2023
FCX Quarterly Free Cash Flow (Fun Trading) Note: I calculate the generic free cash flow using the Cash from operating activities minus CapEx. Trailing 12-month free cash flow was $383 million , with $510 million in Q2'23. The company maintained a quarterly dividend of $0.15 per share in Q2'23.
3 - Net debt is stable at $2.81 billion in Q2'23
FCX Quarterly Cash versus Debt History (Fun Trading)
At the end of the second quarter, cash equivalents were $6,683 million , down 29.6% year over year. The company's long-term debt was $9,495 million (including the current, $37 million in Q2'23), nearly unchanged year over year. Net debt Adjusted EBITDA is 0.3x .
Liquidity is $11.35 billion in Q2'23. See details below:
FCX Balance Sheet Details (FCX Presentation)
4 - Metal Production Analysis - Copper/Cu, Gold/Au, and Molybdenum/Mo
4.1 Gold and Copper Production
FCX Quarterly Production per Metal History (Fun Trading) Copper Production decreased 0.7% to 1,067 million pounds ( net 715 million pounds ) from 1,075 million pounds in the same quarter a year ago (see chart above). Richard C. Adkerson, Chairman and Chief Executive Officer, said in the press release: Our global team continues to execute our strategy and deliver strong results. During the second quarter, we achieved solid production performance, managed costs efficiently and advanced several important value-enhancing initiatives. As a leading supplier of copper with long-lived reserves, organic growth opportunities, a solid balance sheet and a proven track record for successful project development, we are positioned for a bright future for the benefit of all stakeholders.
The gold production increased to 483K oz (net 238K ounces) , and 21 Mlbs of Molybdenum was produced (net 18 Mlbs).
Below are the copper, gold, and molybdenum prices received by Freeport-McMoRan over the past five quarters:
Price | Q2'22 | Q3'22 | Q4'22 | Q1'23 | Q2'23 |
Copper price realized - Cu per pound | 4.03 | 3.50 | 3.77 | 4.11 | 3.84 |
Gold price Realized - Au per ounce | 1,827 | 1,683 | 1,789 | 1,949 | 1,942 |
Molybdenum price realized - Mo | 19.44 | 17.05 | 18.94 | 30.32 | 24.27 |
Source: Fun Trading
4.2 Production of Copper, Gold, and Molybdenum per mine in Q2'23
FCX Q2'23 Production per Mine per Metal (Fun Trading)
Note: The average net cash costs were $1.47 per pound of copper (credits) in the second quarter of 2023.
4.3 Reserves situation as of 12/31/2022 (unchanged)
FCX Reserves (FCX prior presentation)
5 - Production outlook for 2023 and other data
Production for 2023 is expected to be 4 billion pounds of copper , 1.75 Moz of Gold , and 79 Mlbs of Molybdenum at a unit net cash cost of $1.55 per pound (by-products).
CapEx for 20223 is expected to be $3.2 billion , excluding Indonesia smelter projects CapEx.
FCX 2023 Guidance (FCX Presentation) FCX TA Chart (Fun Trading StockCharts) Technical Analysis (short-term) and Commentary
Note: The chart is adjusted for the dividend.
FCX forms a Symmetrical Wedge (or triangle) pattern with a resistance of $40.15 and support at $36.2. RSI is 33 , which is oversold and suggests a possible strong support around $36.
Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line. The stock will continue channeling downward until it is able to break either the upper or lower trend line.
The trading strategy that I recommend is to trade LIFO for about 50% of your FCX position. I suggest selling partially in the $39.7 and $41 range with possible higher resistance at $43 and waiting for a retracement to buy between $36.25 and $35.6 with possible lower support at $34.5 .
Watch the price of copper like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Freeport-McMoRan: Despite Weakness Ahead, The Stock Is Now Attractive