10-QPeriod: Q2 FY2008

FREEPORT-MCMORAN INC Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 11, 2008For Securities:FCX

Summary

Freeport-McMoRan Inc. (FCX) reported solid financial results for the second quarter and first six months ended June 30, 2008, driven by strong commodity prices for copper, gold, and molybdenum. Despite facing increased production costs, particularly for energy, the company demonstrated resilience through effective operational management and strategic expansion initiatives. Revenues remained robust, mirroring the previous year's second quarter, while income from continuing operations showed a slight decrease year-over-year, reflecting higher costs and purchase accounting adjustments. The company's balance sheet strengthened with increased total assets and stockholders' equity. Significant investments in development projects across North America, South America, and Indonesia are underway to expand production capacity and extend mine lives. These include the Safford mine ramp-up, the restart of the Climax molybdenum mine, and advancements at El Abra and the Grasberg Block Cave project. Management expressed confidence in the company's ability to generate strong operating cash flows and manage its capital resources effectively, supported by positive market conditions and ongoing strategic growth plans.

Financial Highlights

23 data points
Beta

Net Income

$947.00M

EPS (Diluted)

$1.13

Cash & Equivalents

$1.65B

Free Cash Flow

$1.01B

Financial Statements
Beta
Cost of Revenue$3.18B
SG&A Expenses$126.00M
Operating Expenses$3.39B
Operating Income$2.05B
Net Income$947.00M
EPS (Basic)$1.24
EPS (Diluted)$1.13
Shares Outstanding (Basic)768.00M
Shares Outstanding (Diluted)900.00M

Key Highlights

  • 1Revenues remained stable year-over-year for the second quarter ($5.441 billion in 2008 vs. $5.443 billion in 2007), indicating strong market demand and pricing.
  • 2Income from continuing operations applicable to common stock decreased slightly to $947 million in Q2 2008 from $1,076 million in Q2 2007, primarily due to higher production costs and purchase accounting impacts.
  • 3Total assets grew to $42.35 billion at June 30, 2008, from $40.66 billion at December 31, 2007, reflecting continued investment in property, plant, and equipment.
  • 4Stockholders' equity increased significantly to $20.17 billion from $18.23 billion, driven by retained earnings and a strong net income for the period.
  • 5Capital expenditures were substantial at $1.11 billion for the six months ended June 30, 2008, reflecting ongoing investments in major development projects across multiple regions.
  • 6Unit net cash costs for copper increased to $1.25 per pound in Q2 2008 from $0.53 per pound in Q2 2007, mainly due to higher commodity input costs, particularly energy.
  • 7The company continued its share repurchase program, with approximately 28.1 million shares remaining authorized for purchase as of July 21, 2008.

Frequently Asked Questions

The acquisition of Phelps Dodge, which closed in March 2007, continued to influence FCX's financial results in Q2 2008. While the full six months of 2008 benefited from a complete period of operations from the acquired assets compared to the partial inclusion in 2007, purchase accounting adjustments, particularly related to increased carrying values of inventory and property, plant, and equipment, continued to impact operating income and depreciation, depletion, and amortization expenses.

The primary driver for increased production costs, particularly for copper, was the rise in commodity input costs, significantly energy. FCX noted that energy costs, including diesel fuel, coal, electricity, and natural gas, represent a substantial portion of their production costs. Higher costs for other consumables, labor, mining, and milling rates also contributed to the overall increase.

FCX operates in markets highly sensitive to copper, gold, and molybdenum prices. The report highlights strong commodity prices in Q2 2008 but notes volatility. Management's outlook for the remainder of 2008 assumes an average copper price of $3.75 per pound, $900 per ounce for gold, and $30 per pound for molybdenum. They explicitly state that each $0.20 per pound change in copper prices could impact 2008 operating cash flows by approximately $300 million, underscoring the significant influence of market prices on financial performance.

FCX reported strong operating cash flows, which are expected to exceed budgeted capital expenditures, minority interest distributions, and dividends. At June 30, 2008, the company had $1.6 billion in consolidated cash and cash equivalents. Total debt was approximately $7.4 billion, with significant borrowing capacity available under its revolving credit facilities. The company also noted credit rating upgrades to investment grade by Standard & Poor's and Fitch, which provided additional financial flexibility. Despite substantial capital expenditures for development projects, management expressed confidence in their ability to fund operations and growth initiatives.