Freeport-McMoRan: Why 2018 Is Different than 2016
| | | | Market Realist | | | By Mark O'Hara2 hours ago 2018 As we discussed in the previous part, Freeport-McMoRan (FCX) has seen negative price action this year. Other copper miners like Southern Copper (SCCO), Glencore (GLEN-L), and Antofagasta (ANTO) have also followed copper lower.. For investors in companies like Freeport-McMoRan, the scars of the 2015–2016 sell-off are fresh. In January 2016, Freeport-McMoRan stock fell below $4 as copper prices fell below $4,500 per metric ton. Along with falling copper prices, Freeport-McMoRan’s precarious financial situation played a major role in the sell-off. At the beginning of 2016, Freeport-McMoRan had a net debt burden in excess of $20 billion. To make things worse, the company had significant debt maturities in 2017–2018 that put the company’s survival under a scanner. Along with falling copper prices, the sharp decline in energy prices made life tougher for Freeport-McMoRan given its exposure to energy assets. Leverage position looks much better Looking at the current scenario, Freeport-McMoRan had a net debt of $7.3 billion at the end of the second quarter with a net debt-to-last 12-month EBITDA multiple of 0.9x. The company doesn’t have debt maturing in 2018 and 2019. Only $2.3 billion worth of Freeport-McMoRan’s debt is coming up for maturity between 2020 and 2021. As Freeport-McMoRan’s asset sales in 2016 highlighted, copper assets command a premium valuation even when copper prices are lower. Copper is expected to enter a period of a structural supply shortfall in the next decade amid a lack of new projects and falling ore grades at existing mines including Escondida—operated by BHP Billiton (BHP). While copper’s long-term story looks bullish and Freeport-McMoRan appears to be in a much better financial situation, trade war noise could continue to play heavy on copper prices.
