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Freeport-McMoRan is expected to make $15 billion in revenues in 2020
Copper $9.5 Billion
Gold $1.5 Billion
Molybdenum $1.1 Billion
Others $7.6 Billion
Elimination -$4.6 Billion
Total Revenue $15 Billion
Freeport-McMoRan's Business Model
What Does FCX Offer?
Freeport-McMoRan Inc. (FCX) is involved in the mining, smelting, and refining of copper, gold, and molybdenum.The company runs its mining and smelting operations in North and South America and Indonesia.Most of the copper concentrate produced by FCX's mines is cast into copper rod by the company's rod and refining operations.Certain mines also produce molybdenum concentrate, gold, and silver.
Copper is bought by third-parties for use in construction and the manufacture of electrical appliances and industrial machinery. Gold:
Gold is mainly sold to jewelry players and certain sensitive electronics industries.Molybdenum:
Molybdenum is primarily sold to the steel industry to make steel alloys. It is also used in various chemical and lubricant industries.
What Are The Alternatives?
FCX's business model faces stiff challenges and competition from offerings by its global competitors such as:For Copper:
Rio Tinto, BHP Billiton, Codelco, Southern Copper, Newmont Goldcorp.For Gold:
Newmont Goldcorp, Barrick Gold, Anglo Ashanti.For Molybdenum:
Rio Tinto, Southern Copper, Codelco.
Freeport-McMoRan's Valuation: Expensive or Cheap?Freeport-McMoran Earnings: Performance and 2019 ForecastHow much is FCX expected to add to its copper revenue in the next 5 years?More Trefis Materials Data
Step 1: Estimating FCX's Total Revenue
For the full year 2019, revenue decreased by 22.7% from $18.6 billion in 2018 to $14.4 billion in 2019, primarily due to a decline in volume and lower price realization in the company's copper segment, partially offset by higher gold prices.Revenue is expected to increase to $15 billion in 2020, mainly due to a positive price outlook for copper and gold, slight pick-up in volume compared to 2019, and higher copper sales from American mines.Additionally, other revenue (which includes rod and refining revenue, silver sales, etc.) is also expected to remain strong in the near term.
Step 1.1: Estimating Copper Revenue
After adding $1.4 billion in revenue between 2016 and 2018, segment lost about $2 billion in 2019, led by negligible output from Indonesia, partially offset by growth in America. Revenue is expected to rise by $0.6 billion in 2020, led by positive price outlook and marginally higher shipments
Though copper revenues have increased from 2016 to 2018 on the back of higher production and elevated global copper price levels, revenue declined by about $2 billion in 2019, compared to 2018, mainly due to a significant drop in revenue from the Indonesian operations.The Grasberg mine in Indonesia, which is the second largest copper mine in the world, is currently transitioning from an open pit mine to an underground mine (two-year transition process), which is driving a sharp drop in the production of copper.With US-China trade talks progressing and a possible truce in sight, prices increased since the beginning of 2019. However, re-escalation of tensions with the imposition of additional tariffs has led to drop in global copper prices since April 2019.Thus, lower shipments and price realization led to a significant drop in copper revenue in 2019Revenue is expected to recover to a certain extent in 2020 due to a positive copper price outlook and higher production in the Americas.
Step 1.2: Estimating Gold Revenue
FCX to lose out on high gold prices, as segment has lost more than half of its 2018 revenue base, due to very low production, owing to transition of Grasberg mine in Indonesia (100% of FCX's gold comes from Grasberg)
Similar to copper, gold revenue also saw an increasing trend due to increased production volume and higher global gold prices.However, gold revenue witnessed a sharp drop of 51% in 2019.Since Grasberg is the world's largest gold mine and contributes almost all of FCX's gold production (with some gold being contributed as a by-product from the American mines), the current transition at Grasberg would lead to negligible gold output for the company.With increased retail and institutional investment in gold since December 2018, in the face of rising global economic uncertainty, gold prices have been on an upswing since the beginning of 2019.With rising investment in the yellow metal by major central banks, gold price realization is expected to remain elevated.However, a significant drop in production has more than offset improvement in price realization, thus leading to very low segment revenue over 2019. Revenue is expected to see only a marginal improvement in 2020, with a full recovery likely to take place in 2021
Our Complete Set Of Analyses On Freeport-McMoRan
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2. How to monitor your scenario vs. actual results
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