By John W. Miller
Freeport-McMoRan Inc. is scheduled to announce its third-quarter
earnings before the market opens Tuesday, and host an analyst call
at 10 a.m. EDT. Here's what you need to know:
EARNINGS FORECAST: Net income of 61 cents a share is expected,
according to analysts surveyed by Thomson Reuters, compared with 87
cents reported a year earlier.
REVENUE FORECAST: Revenue of $6.2 billion is forecast, compared
with $5.6 billion reported a year earlier.
WHAT TO WATCH:
--INDONESIA: Freeport continues to have issues in Indonesia,
where it operates the Grasberg copper and gold mine, one of its
principal global production sites. The company's shares declined
after union officials reported Monday that some 10,000 workers at
the mine would begin a month-long strike next week to protest
recent fatal accidents at the mine. The company settled a dispute
with the government earlier this year over export taxes by
committing to build a smelter. Updates on both situations are
expected Tuesday. "Indonesia will dominate the call," says one
analyst.
--OIL AND GAS: Another focus will be on Freeport's oil and gas
assets. The company, whose executives have a history in the oil and
gas business, is trying to diversify away from its traditional
metals portfolio. The company acquired Gulf of Mexico assets from
Apache Corp. in May for $1.4 billion, and sold its Eagle Ford shale
assets to Encana Corp., also in May, for $3.1 billion. It could
sell other noncore oil and gas assets. "Their concept is to buy
things at low costs that have reserves that aren't fully
recognized," says Charles Bradford of Bradford Research Inc. "And
they try to sell established assets where the price fully reflects
what it's worth."
--COPPER: Freeport has been ramping up copper production by more
than 10% per year, and analysts are looking for updates on when
projects in Arizona and Peru will go into full production. That
division has been profitable. A key ingredient in the making of
home pipes and electrical wiring, copper has been relatively
resilient. Copper prices dropped about seven percentage points in
the quarter, to around $3 a pound. Freeport's cash costs are
typically under $2 a pound, so it has been profitable. "But they
haven't really hit their stride yet, because they don't have a
stabilized baseline yet in Indonesia," says Jorge Beristain of
Deutsche Bank. "And every time it seems they have that thing nailed
down, another spring pops loose."
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