Let’s take a closer look at how Freeport performed during the quarter and if it can make a comeback in the coming months.
What Happened with Freeport
Freeport witnessed a 14% decline in its copper production during the third quarter of 2019 to 864 million pounds as compared to 1 billion pounds in the year-ago period. On the other hand, gold production also fell by a huge margin of 56% to 333,000 ounces in the third quarter.
This massive drop in Freeport’s output was not surprising. The company’s production was hampered by weak milling rates and declining ore grades thanks to the transition from open-pit mining to underground mining at Grasberg. What’s more, Freeport witnessed a drop in its pricing of copper.
The average realized price of copper for Freeport came in at $2.62 per pound in the third quarter, down nearly 6% from the year-ago quarter. However, the average realized price of gold increased substantially from $1,191 an ounce a year ago to $1,487 an ounce this time.
But the combination of lower prices and weak production levels was enough to knock the wind out of Freeport’s sails during the quarter. Its revenue came in at $3.3 billion during the quarter as compared to $4.9 billion a year ago. Its operating income was down to just $117 million in the third quarter as compared to $1.3 billion in the year-ago period.
More Pain Ahead for Freeport
Analysts expect Freeport’s financial performance to pick up the pace next year. Its revenue is expected to jump 6%, while earnings per share are anticipated to jump from $0.03 this year to $0.49 next year.
The good news for investors is that Freeport’s production is expected to take off impressively once the transition happens. According to the company’s press release:
What’s more, the DMLZ underground mine is also expected to deliver production of 8 billion pounds of copper and 8 million ounces of gold over its entire life. However, investors need to be aware of the fact that the copper pricing scenario could prove to be a headwind for Freeport’s turnaround.
Thanks to the global economic slowdown, copper prices have taken a hit. The bad news is that the price of copper could continue to head lower, with analysts issuing a negative to neutral forecast for the price of the metal. As such, Freeport investors should wait and watch before taking a call as the company needs to keep progressing as far as the transition is concerned, or any bit of bad news could send the stock lower.
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