Zacks_Analysts' Blog : Neutral on Freeport-McMoRan - Analyst Blog

We maintain our Neutral recommendation on Freeport-McMoRan Copper & Gold (FCX). The company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; as well as smelting and refining of copper concentrates.

Recently, Freeport announced its fourth quarter and fiscal 2011 results. The company reported a profit of $460 million or 67 cents per share in the fourth quarter of 2011 versus $1.5 billion or $1.63 in the same quarter of 2010. The profit, however, surpassed the Zacks Consensus Estimate by 3 cents.

Revenue was $4.2 billion versus $5.6 billion in the prior-year quarter, surpassing the Zacks Consensus Estimate of $3.8 billion. The company’s capital expenditures are expected to reach $4.0 billion for 2012, including $2.4 billion for major projects and $1.6 billion for sustaining capital.

Freeport is conducting exploration activities near its existing mines with a focus on opportun ities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates. Favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America and in the Tenke Fungurume minerals district.

The drilling data in North America continues to reflect the potential for expanded sulfide production. Exploration spending for 2012 is expected to approximate $275 million compared with $221 million in 2011. Exploration activities will continue to focus primarily on the potential for future reserve additions in Freeport’s existing minerals districts.

Freeport has a strong balance sheet. As of December 31, 2011, the company had $4.8 billion in consolidated cash and cash equivalents and $3.5 billion in total debt. During 2011, Freeport repaid $1.2 billion in debt and paid common stock dividends totaling $1.4 billion ($1.50 per common share). The company has no significant debt maturities in the near term; however, it may consider additional opportunities to prepay debt in advance of scheduled maturities.

However, the prolonged strike at the Grasberg mine has affected production tremendously. Freeport is also conducting exploration activities near its existing mines while focusing on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates.

The company faces stiff competition from Newmont Mining Corp. (NEM) and Southern Copper Corp. (SCCO). It currently retains Zacks #3 Rank on its stock, which translates into a short-term Hold rating.