Wednesday, October 21, 2009

Freeport McMoran (FCX) Beats Estimates Handily, Reinstates Annual Dividend

I can't think of a better proxy for this rally than Freeport McMoran Copper & Gold (FCX). Whereas oil stocks were the main proxies for the 2007 to mid 2008 commodity rally, FCX seems to have taken the reigns this time around, with copper being not only a commodity that can be lifted as a pure inverse to the US dollar - but also as a classic early cycle recovery theme. (copper going into housing and industrial production) [Nov 23, 2007: Is Copper Signaling a Slowing Global Economy?] Don't be fooled by the company name - 90% of the business is copper.

Other than during the period we've had the 1 market correction of >5% (July) since March 2009, it's been a straight moon shot up for FCX. Definitely an error on our part on not jumping on this bandwagon in the past half year. In fact we made a futile attempt at shorting many months ago. Oops.

Latest results this morning:
  • Freeport-McMoRan Copper & Gold Inc. said Wednesday that quarterly earnings rose for the first time this year as the mining giant cut costs, developing countries bought copper and investors nervous about the economy bought gold.
  • Sales fell 10 percent to $4.14 billion, down from $4.62 billion last year.
  • Earnings jumped 77 percent to $925 million, or $2.07 per share, from $523 million, or $1.31 per share, a year ago. (that's some amazing leverage, sales down 10% earnings up 77% - talk about cost cutting!) That easily beat analyst expectations of $1.34 per share.
  • Freeport-McMoRan cut production and delivery costs by 40 percent over the past three months, generating gains that more than offset a quarterly decline in revenue.
  • Copper mining costs were cut to 50 cents per pound, from $1.29 a year earlier, (tremendous) while the company sold the metal at an average price of $2.75 per pound compared to $3.14 in the 2008 quarter, he said.
  • It continues to experience weakness in North America, where copper sales fell 16 percent because of a severe slowdown in the housing and consumer-electronics sectors.
  • Miners like Freeport-McMoRan are increasingly relying on China for sales. China is spending billions on infrastructure projects such as roads and new buildings. The country is flush with cash, meaning it was also able to stockpile copper while prices were cheap. [Mar 23, 2009: - Chinese Stockpiling Spurs Copper Price Rally]
  • Argus Research analyst Bill Selesky said the company's higher gold prices offset lower year-over-year copper prices.
  • Freeport-McMoRan predicted a 14 percent decline in 2009 copper sales, to 1.2 billion pounds, and another 17 percent drop in 2010 sales, to about 1 billion pounds. Adkerson attributed the declines in part to operations at the Grasberg complex in Indonesia where lower grades of copper will be mined, meaning the company will get smaller amounts of copper and gold from the material being pulled from the ground.
  • Freeport-McMoRan restored the full dividend this quarter as well, at 60 cents per share.
[Jul 21, 2009: Caterpillar and Freeport McMoran Copper and Gold Please the Street]

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