Freeport-McMoRan Shrugs Off Strikes as Copper Outlook Shines

By Shihoko Goto – Exclusive to Copper Investing News

With earnings seasons in full swing, the scorecard for which company is up and which company is down and why will be made clear to Wall Street. For copper investors, though, the burning question remains whether the red metal can continue its upward trajectory of years past by shrugging off lingering doubts about the copper’s price and global demand for the metal in coming months.

The recent performance by Freeport-McMoRan Copper & Gold (NYSE:FCX) has no doubt given a boost to the bulls. Last week, the world’s largest publicly traded copper producer reported fourth quarter earnings results that largely beat analysts’ expectations, even though it had struggled through its longest mining strike most of those three months. That mixed performance has been reflected by analysts’ evaluation of  the company, as some investors including BB&T Capital Markets are keeping their “Buy” recommendation for the company, while others such as Citigroup have reiterated their “Neutral” rating for Freeport.

One thing is clear, the Grasberg mine strike in Indonesia from September to mid-December led to Freeport’s earnings falling nearly 60 percent from a year ago. However, the company beat estimates due in part to lowered projections by analysts based on the latest developments at the mine. In fact, the company lost about 165 million pounds of copper in the latest quarter due to the disruptions, and copper sales from all its mines reached 823 million pounds, down from 941 million pounds during the same quarter a year ago.

Meanwhile, the price of copper has been falling. Granted, copper prices rose 8 percent from a year ago in the fourth quarter, but in 2011 overall, the price of the red metal fell 25 percent from the previous year. The average price for its copper was $3.42 a pound in the fourth quarter, compared to $3.60 in the previous quarter.

Yet the Phoenix, Arizona-based company remains upbeat about the future.

“Markets are tight worldwide, the inventories have come down recently by 25 percent during the fourth quarter. China continues to be strong despite concerns,” said Freeport CEO Richard Adkerson in a conference call with analysts following the release of the latest results. Net income in the fourth quarter reached $640 million, or 67 cents a share, against $1.5 billion, or $1.63 a share, a year ago.

The company’s optimism is reflected in its 2012 projections, as it sees copper sales reaching 3.8 billion pounds, up from 3.7 billion pounds in 2011.

Output is already up for other copper producers too. Toronto-based Lundin Mining (TSX:LUN), for instance, reported last week that fourth quarter production rose 10 percent to 27,488 tonnes, even though for the full year, production dropped 5 percent to 75,877 tonnes due to production issues at its Neves-Corvo mine in Portugal.

As for Brisbane-based PanAust (ASX:PNA), which focuses its operations in Laos, it expects higher copper output this year even though it also anticipates higher production costs. For 2012, it sees output reaching between 63,000 tonnes and 65,000 tonnes, up from 60,000 tonnes in 2011. Production costs, however, are seen rising too by as much as 14 percent from a year ago. PanAust will be reporting its fourth quarter and full-year results next month.

Ahead of the release of the latest results this week and next, a number of Canadian miners invested heavily in Peru are gaining ground, and leading to a rise in commodities-rich Peru’s bourse in particular. Alturas Minerals (TSXV:ALT), Panoro Minerals (TSXV:PML), Candente Copper (TSX:DNT), and Rio Alto Mining (TSXV:RIO) all rose Tuesday as copper prices rebounded, boosting the Peruvian economy’s outlook with it.

Meanwhile, market eyes will be closely following the results of Peru’s biggest copper producer Southern Copper (NYSE:SCCO), which will be releasing its latest results later this week.

I, Shihoko Goto, have no interests in the companies mentioned in this article.