Freeport-McMoRan (FCX, Financial) displayed good performance in the mining division during the second quarter that led its revenue to grow to $5.52 billion, an increase of almost 29% from $4.29 billion a year ago. However, its net income in the second quarter was relatively flat that came in at $482 million, or earnings of $0.46 per share, as compared to $482 million, or earnings of $0.49 per share, in the same quarter last year. Analysts had expected earnings of $0.49 per share on the revenue of $5.24 billion for the second quarter 2014.
Getting better
Nevertheless, the good news for the shareholders is that Freeport has managed to crack a deal with the Indonesian government and will now resume its copper concentrate exports that were stagnant for the last six months due to a tax dispute. It exploits one of the biggest copper mines in the world at Papua in Indonesia. Also, Freeport remains confident of shipping approximately 10,000 copper tons to China this year. Freeport sees a strong demand for copper in China led by various consumer and infrastructure investment in the region. Besides, the government of China has started providing incentives which is thought to be modest but very significant, especially in areas where copper is consumed.
Besides, the company is experiencing a gradual improvement in the copper market in Europe despite the economic consequences that now look favorable. Freeport is also accelerating its copper production in the U.S. at Arizona and New Mexico by almost 13% that remains quite optimistic due to its transparent labor lows and permitting regulations.
Also, the demand for automobile and construction activities in U.S is driving growth for its copper market that should help the company to fetch extra market in the segment. Hence, the overall global copper market now looks pretty healthier, creating solid growth opportunities for the company in the long-run. Freeport will certainly be profited as the prices for copper will rise due to constraint supply challenges confronted in the industry worldwide.
Better times on the way
Meanwhile, Freeport is continuously ramping up its production and has acquired large resource base that will drive its growth and maximize its chances, taking away a larger share in the market. Freeport has commenced three new high return projects that will accelerate the copper volume approximately $1.00 billion pounds annually. The company during the second quarter has managed to own Morenci resource that will produce about 225 million pounds of copper per year and has also acquired Cerro Verde projects that has tremendous growth prospects as it is one of the biggest concentrator milling operation in the world with 360,000 tons a day.
In addition, its online project Tenke is performing fairly well and continues to expand its operations with its El Abra mine, concentrating on sulfide resources. These projects in combine will certainly lead to significant growth for the company going forward and will enhance its production capacity.
Its oil and gas business also looks strong with the commencement of its Lucius development Deepwater Gulf of Mexico project. In addition, its onshore Highlander project is on the final phase of completion and will be in operation in the first quarter of 2015. These projects will strengthen its oil and gas business going forward and will help the company to gain market share in this segment.
Freeport is also planning to accelerate investment for its deep water oil and natural gas by selling its onshore assets . The company is planning to sell onshore assets worth $5 billion that will assist Freeport to reduce its debt drastically. Its total outstanding debt increased to $20.30 billion from $3.5 billion as it acquired two big companies in the oil and gas segment last year.
Further, the company strongly remains committed to bringing down this mounting debt to $12 billion by fiscal year 2016. Freeport, during the second quarter, has declared sale of its onshore property Texas Shale for about $3.1 billion and has entered into a strategic deal with the Apache Corp (APA, Financial) to accelerate production for its oil and gas business for nearly $1.4 billion.
Conclusion
Freeport is currently trading at the trailing P/E of 15.08 and forward P/E of 12.91 that shares quite a reasonable valuation for the company. Its PEG ratio stands at 0.40 and signifies remarkable growth certainty in the future. Besides, the company remains solid on its performance matrix as its profit and operating profit margins for the last twelve months remains at 11.17% and 25.44% respectively. Freeport’s ROE of 12.90%for the last twelve months also suggest that the company is fairly creating value for the investors and shareholders. Moreover, the analysts have estimated CAGR of 37.76% more than double than the average industry CAGR of 16.76% for the next five years indicate potential growth for the company in the future.
