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Freeport-McMoRan Profits on Rising Copper

By    |   Tuesday, 07 Jun 2011 12:50 PM

Freeport-McMoRan Copper & Gold, Inc. (FCX) is a global mining giant based in the United States. One often thinks of mining companies generating the bulk of their production in places like Australia and South America. Freeport-McMoRan has mines in these regions but still generates the majority of revenues from its North American production.

This company is primarily a copper producer. The secondary metals production of gold and molybdenum come from the mining activity at Freeport-McMoRan's copper mines. The company has major mining complexes in the Southwestern United States, South America, Africa, and Indonesia. FCX is the world's second-largest copper producer and largest molybdenum producer.

For the first quarter of 2011, Freeport-McMoRan saw revenues increase to $5.71 billion, up from $4.63 billion a year earlier. Net income for the quarter was $1.57 per share, up from $1 earned in the first quarter of 2010. The company's board of directors declared a special 50 cents per share dividend to coincide with the first quarter earnings release.

Metal sales numbers year-over-year were very similar. The revenue pop was due to higher realized metal prices. The average sales price for Freeport-McMoRan's three main metals for 2011 Q1 and 2010 Q1 are as follows:

• Copper: $4.31 per pound vs. $3.42.
• Gold: $1,399 per ounce vs. $1,110.
• Molybdenum: $18.10 per pound vs. $15.09.

Freeport-McMoRan management consolidates production costs into a unit net cost, price per pound of copper. Profits from gold and molybdenum reduce this unit net cost. For the first quarter, the unit net cost was 79 cents, compared to 82 cents one year earlier.

Tied to the commodity

Copper prices are cyclical and tend to mirror global economic growth. A 10 cents per pound increase or decrease in copper prices affects the company's annual cash flow by approximately $270 million. In comparison, a $50 change in the price of gold has a $40 million effect on the cash flow.

Recent analyst comments on FCX have Goldman Sachs reiterating a buy rating on the stock and Credit Suisse rate Freeport-McMoRan as outperform with a $75 target price.

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Freeport-McMoRan Copper Gold, Inc. (FCX) is a global mining giant based in the United States. One often thinks of mining companies generating the bulk of their production in places like Australia and South America. Freeport-McMoRan has mines in these regions but still...
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2011-50-07
Tuesday, 07 Jun 2011 12:50 PM
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