01—Abstract
Summary
Summary of the 8-K filed January 24, 2024. Cited figures are marked; the original filing is the authoritative source.
Freeport-McMoRan (FCX) reported fourth-quarter and full-year 2023 results on January 24, 2024.
Q4 net income attributable to common stock was $388 milliona ($0.27 per share), or $393 million ($0.27 per share) on an adjusted basis, with net charges of only $5 million. For full-year 2023, net income attributable to common stock was $1.85 billion ($1.28 per share), down from $3.47 billion ($2.39 per share) in 2022, while operating cash flow was $5.3 billion and capital expenditures were $4.8 billion. Copper production was 4.2 billion pounds for the year, with unit net cash costs of $1.61 per pound.
Operating cash flow was reduced by about $0.9 billionb of working capital and other uses, and the company says its 2024 operating cash flow is expected to be about $5.8 billion at $3.75 per pound copper. The main investor issues are the financial policy and the Indonesia situation. Net debt excluding Indonesia smelter projects was $0.8 billion at year-end, within the company's $3–4 billion target, and the company distributed a $0.15 per share dividend payable February 1, 2024.
However, PT-FI's Indonesia export duties of 7.5%c in 2H23 are expected to rise to 10% in 2024 for companies below 90% smelter progress, though PT-FI is contesting this. PT-FI's copper and gold export licenses expire in May 2024, and continued exports depend on extensions. The Manyar smelter reached over 90% completion and targets mechanical completion in May 2024, but the company's 2024 outlook still depends on resolving export permits.
For 2024, management guides to 4.1 billion pounds of copper sales, 2.0 million ounces of gold, and unit net cash costs of $1.60d per pound. Growth projects include a Bagdad expansion (roughly $3.5 billion capital, requiring a $3.50–$4.00 per pound incentive copper price) and Kucing Liar development. Management says the decision on Bagdad depends on copper market conditions.
02—Key points
Key Highlights
- Q4 2023 net income attributable to common stock of $388M ($0.27/share); adjusted net income of $393M, with only $5M in net charges
- FY2023 net income attributable to common stock fell to $1.85B ($1.28/share) from $3.47B ($2.39/share) in 2022, reflecting lower operating income and higher noncontrolling interest income
- FY2023 operating cash flow of $5.3B (net of $0.9B working capital uses) and capex of $4.8B, including $1.7B for Indonesia smelter projects
- Net debt excluding Indonesia smelter projects was $0.8B at year-end 2023, within the $3–4B target; consolidated debt was $9.4B and consolidated cash was $4.8B
- Indonesia export duties of $307M incurred in 2H23 under a revised regulation; the rate rises to 10% in 2024 for smelter progress of 70–90%, though PT-FI disputes its applicability
- 2024 guidance: 4.1B lbs copper, 2.0M oz gold, unit net cash costs of $1.60/lb, and about $5.8B operating cash flow at $3.75/lb copper
- Quarterly dividend of $0.075 base plus $0.075 variable per share ($0.15 total), payable February 1, 2024
03—Questions
Frequently Asked Questions
Why did FCX's earnings fall sharply in 2023 compared with 2022?
Full-year net income attributable to common stock fell to $1.85B from $3.47B, and diluted EPS fell to $1.28 from $2.39. Operating income declined to $6.2B from $7.0B, and a larger share of earnings went to noncontrolling interests, $1.9B versus $1.0B. Noncontrolling interests mainly reflect PT-FI, Cerro Verde and El Abra. The reduced economic interest in PT-FI, from about 81% to 48.76% effective January 1, 2023, contributed to this shift. Copper realized prices were roughly flat at $3.85 per pound, versus $3.90 in 2022.
What is the main risk to FCX's 2024 outlook?
The main risk is Indonesia. PT-FI's copper concentrate and anode slimes export licenses expire in May 2024, and continued exports depend on government approvals. Export duties also rise to 10% for 2024 under the revised regulation unless PT-FI's position on smelter progress above 90% is accepted. The 2024 guidance assumes duties of about 11 cents per pound consolidated, and the company's sales volume forecast depends on these permits.
How strong is FCX's balance sheet?
Consolidated debt was $9.4B and cash was $4.8B at December 31, 2023, or $5.8B including $1.1B of restricted cash held in Indonesia. Net debt excluding Indonesia smelter projects was $0.8B, within the company's $3–4B target. Including the $2.8B of smelter-related net debt, FCX's total net debt was $3.6B. Liquidity includes $3.0B under the FCX revolver and $1.75B under the PT-FI revolver. Moody's upgraded FCX to Baa2 in late 2023. The next scheduled senior note maturity is $0.7B in November 2024.
How does FCX return cash to shareholders?
Under its performance-based payout framework, FCX allocates up to 50% of free cash flow, after planned capital spending and noncontrolling interest distributions, to shareholder returns, with the rest going to debt reduction and growth projects. Returns include a base dividend and a variable dividend, along with share repurchases. The Q4 2023 dividend totaled $0.15 per share, and about $3.2B remained available under the buyback authorization as of January 2024. The Board sets dividends and buybacks at its discretion, and payouts are limited by the net debt target.
What growth options does FCX have beyond 2024?
The main options are the Bagdad 2X expansion in Arizona, which would add about 200–250 million pounds of copper per year for roughly $3.5B of capital over three to four years, but only at a $3.50–$4.00/lb incentive copper price. Other options include the Kucing Liar mine at Grasberg, expected to add about 560 million pounds of copper per year after 2029, and Lone Star oxide expansion. Management also has a leach initiative targeting incremental production of about 200 million pounds per year. Management says the Bagdad investment decision depends on copper market conditions and labor availability.
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