10-QPeriod: Q1 FY2017

FREEPORT-MCMORAN INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 5, 2017For Securities:FCX

Summary

Freeport-McMoRan Inc. (FCX) reported improved financial results for the first quarter of 2017 compared to the same period in 2016, driven by higher copper and molybdenum prices and reduced depreciation, depletion, and amortization (DD&A) expenses. The company generated a net income attributable to common stockholders of $228 million, a significant turnaround from a net loss of $4.2 billion in Q1 2016, which was heavily impacted by a $3.8 billion impairment charge related to oil and gas properties. Despite the improved profitability, consolidated revenues saw a modest increase to $3.34 billion from $3.24 billion, impacted by lower sales volumes, particularly in copper and gold, largely due to regulatory restrictions in Indonesia affecting PT Freeport Indonesia (PT-FI) and lower ore grades in North America. The company maintained a strong liquidity position with $4.0 billion in cash and cash equivalents and a significant portion of its debt maturing in the long term, with no borrowings against its $3.5 billion revolving credit facility. Key focus remains on managing costs, capital spending, and advancing plans for future copper resource development, while navigating ongoing negotiations with the Indonesian government regarding PT-FI's operating rights.

Financial Statements
Beta

Key Highlights

  • 1Turnaround in profitability: Reported net income attributable to common stockholders of $228 million for Q1 2017, a substantial improvement from a net loss of $4.2 billion in Q1 2016.
  • 2Increased revenue due to commodity prices: Consolidated revenues rose slightly to $3.34 billion, benefiting from higher average realized prices for copper (+22%) and molybdenum (+14%).
  • 3Lower sales volumes impacting revenue: Consolidated copper sales volumes decreased by 19% year-over-year, primarily due to regulatory issues in Indonesia and lower ore grades in North America.
  • 4Strong liquidity position: Ended the quarter with $4.0 billion in cash and cash equivalents and $3.5 billion available under its revolving credit facility.
  • 5Significant debt reduction efforts: Total debt decreased from $20.7 billion at the end of 2016 to $15.4 billion at March 31, 2017.
  • 6Indonesia operational uncertainty: Continued regulatory challenges in Indonesia for PT-FI led to production disruptions and slowed investments, though concentrate exports resumed in late April.
  • 7Reduced operating costs: Lower depreciation, depletion, and amortization (DD&A) expenses contributed to improved profitability, alongside efforts to manage production and administrative costs.

Frequently Asked Questions

The primary driver was a significant turnaround in profitability, moving from a substantial net loss in Q1 2016 (heavily impacted by a $3.8 billion oil and gas property impairment) to a net income in Q1 2017. This was supported by higher commodity prices for copper and molybdenum, and a reduction in depreciation, depletion, and amortization expenses.

A major uncertainty is the ongoing regulatory situation in Indonesia concerning PT Freeport Indonesia's (PT-FI) Contract of Work (COW) conversion to an IUPK and investment stability agreement. This situation has led to production disruptions and slowed investments, and its resolution will significantly impact future operations and financial results. Additionally, commodity price volatility for copper, gold, and molybdenum remains a persistent risk.

Freeport-McMoRan has made significant progress in reducing its debt. Total debt decreased substantially from $20.7 billion at the end of 2016 to $15.4 billion at March 31, 2017, primarily through debt repayments.

The company projects consolidated sales volumes of 3.87 billion pounds of copper, 1.9 million ounces of gold, and 93 million pounds of molybdenum for 2017. Consolidated unit net cash costs for copper mines are expected to average $1.08 per pound, with projections subject to commodity prices, operational performance in Indonesia, and other factors.