01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Freeport-McMoRan's FY2014 10-K shows a year of sharp contrast: solid operating volumes and a large asset-sale program, offset by a collapse in oil prices that forced massive write-downs and a swing to a net loss.
Revenue rose to $21.4 billiona (from $20.9 billion), but operating income fell to $97 million (from $5.35 billion) after $5.5 billion of impairments (oil and gas full-cost ceiling charges of $3.7 billion plus a $1.7 billion goodwill write-off). Net loss attributable to common stockholders was $1.31 billion, or $(1.26) per share, versus $2.66 billion of income in 2013. The company completed roughly $5 billion of asset sales in 2014, including the Eagle Ford shale assets for $3.1 billion and 80% of the Candelaria and Ojos del Salado mines for $1.8 billion, and used the proceeds largely to pay down debt.
Total debt still stood at $19.0 billionb at year-end against $464 million of cash, and management has cut 2015 budgeted capital spending and exploration by $2 billion, is seeking third-party funding for oil and gas capex, and says the Board is reviewing its financial policy, including a possible reduction or suspension of the common dividend. Looking forward, the key swing factors are copper and oil prices, Indonesian government negotiations over PT Freeport Indonesia's Contract of Work (MOU extended to July 25, 2015), and major growth projects, notably the Cerro Verde expansion due late 2015 and underground development at Grasberg. Management guides to 2015 consolidated copper sales of about 4.27 billion pounds and operating cash flow of roughly $4 billion, assuming $2.60 per pound copper and $50 per barrel Brent.
02—Key points
Key Highlights
- Revenue of $21.4 billion (up 2% from $20.9 billion), with copper contributing 60%, oil 20%, gold 7% and molybdenum 6%.
- Operating income collapsed to $97 million from $5.35 billion, driven by $5.5 billion of impairments ($3.7 billion oil and gas ceiling test, $1.7 billion goodwill) and a $(118) million adjustment to prior-period provisional sales.
- Net loss attributable to common stockholders of $(1.31) billion, or $(1.26) per share, versus $2.66 billion ($2.64 per share) in 2013.
- About $5 billion of asset sales in 2014: Eagle Ford for $3.1 billion and Candelaria/Ojos del Salado for $1.8 billion, with proceeds used to fund reinvestment and reduce debt.
- Total debt of $19.0 billion and cash of $464 million at year-end; S&P rates senior unsecured debt BBB- with a stable outlook, and the revolver was amended in February 2015 to raise the maximum leverage ratio to 4.75x for 2015 and 2016.
- Capital spending is being cut: 2015 capex guided to about $6.0 billion, with $2 billion of budgeted 2015 capex, exploration and other costs already removed.
- Indonesia remains the key risk: PT-FI is negotiating an amended COW, the export permit runs only to July 25, 2015, and the company has agreed to pay higher royalties and export duties (7.5% declining with smelter progress).
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2014, Freeport-McMoRan Inc lost $0.06.
- Revenue$21.44B100.0%
- Cost of revenue−$19.50B91.0%
- Gross profit$1.93B9.0%
- Operating costs−$2.23B10.4%
- Operating income−$298.0M1.4%
- Interest, other & tax−$1.01B4.7%
- Net income−$1.31B6.1%
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $21.44B$20.92B | +2.5% |
| Cost of Revenue | $19.50B$14.64B | +33.3% |
| Gross Profit | $1.93B$6.28B | −69.2% |
| SG&A Expenses | $580.00M$657.00M | −11.7% |
| Operating Expenses | $20.30B$15.57B | +30.4% |
| Operating Income | -$298.00M$5.35B | −105.6% |
| Net Income | -$1.31B$2.66B | −149.2% |
| EPS (Basic) | $-1.26$2.65 | −147.5% |
| EPS (Diluted) | $-1.26$2.64 | −147.7% |
| Shares Outstanding (Basic) | 1.04B1.00B | +3.7% |
| Shares Outstanding (Diluted) | 1.04B1.01B | +3.3% |
05—Questions
Frequently Asked Questions
Why did FCX swing from a $2.7 billion profit to a $1.3 billion loss in 2014?
Mainly non-cash charges. Falling oil prices triggered a $3.7 billion full-cost ceiling impairment on U.S. oil and gas properties and a $1.7 billion write-off of all remaining goodwill. Copper and gold price realizations were also lower, and a $717 million gain on the Candelaria/Ojos sale only partly offset these charges.
Is the dividend at risk?
The company paid $1.25 per share in 2014 and expects a 2015 regular dividend of about $1.3 billion. However, the Board said it is reviewing its financial policy, including a potential reduction or suspension of the common dividend, given the copper and oil price declines. Management has not yet made a decision, so the dividend is not guaranteed.
How leveraged is the balance sheet and can it meet its obligations?
Total debt was $19.0 billion against total stockholders' equity of $18.3 billion, and cash was $464 million. Debt maturities are $478 million in 2015 and $651 million in 2016, and the company has a $4.0 billion revolver with about $4.0 billion available at year-end. Management says 2015 operating cash flow plus available liquidity should cover budgeted capex, dividends and other needs, though the company also expects to rely on asset sales and third-party funding.
What are the biggest growth drivers and execution risks?
The Cerro Verde expansion (concentrator to 360,000 metric tons per day, about 600 million pounds of incremental copper per year from 2016) is more than 50% complete and due in late 2015. Morenci's mill expansion reached full rates in early 2015. The longer-term Grasberg underground projects (Grasberg Block Cave, Deep Mill Level Zone) carry Indonesian political and licensing risk, and copper and oil prices remain volatile.
What does the Indonesian situation mean for investors?
PT-FI supplied about 16% of 2014 copper and 93% of gold, so it is a core asset. Its COW expires in 2021 with two 10-year extensions that require government approval, and the July 2014 MOU, which governs exports and royalties, expires July 25, 2015. The company must still negotiate an amended COW that includes a 30% divestment to Indonesian interests and new smelter capacity, so outcomes there could materially affect production, reserves and cash flow.
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