Freeport Mcmoran Case Study

Freeport-McMoRan (FCX) has lost half of its market value so far this year, but the stock has made a comeback in the past couple of months, gaining more than 42% since the end of August. However, this impressive run might come to an end due to the company’s weak third-quarter results that were released last Thursday. In addition, the weakness in the copper market is expected to continue, at least in the short run, and this will have a negative impact on Freeport.
Let’s take a look at the reasons why Freeport might face weakness in the near-term, and what steps the company is undertaking to overcome them.
The copper market outlook is weak
The copper market has been under pressure over the past year as evident from the chart given below: Source
Looking ahead, the

Otherwise, the global economic conditions are still not very conducive for copper’s growth. As a result of the weakness in the end market, Freeport-McMoRan’s results have been hurt badly.

For instance, in the recently-reported third quarter, the company reported a net loss of $3.8 billion. After adjusting for the net charges of $3.7 billion, or $3.43 per share, the third-quarter 2015 loss totalled $156 million, or $0.15 per share.
The company sold 1 billion pounds of copper in the quarter, down from 1.1 billion pounds in the year-ago period. Apart from weaker shipments, Freeport also struggled due to a drop in the average realized price. For instance, the average realized price of copper was $2.38 per pound last quarter, 23% below last year's average price of $3.12 per pound. Moreover, for mining operations, Freeport’s consolidated unit cash costs increased to an average of $1.52 per pound of copper as compared to $1.34 per pound last year. Hence, Freeport needs to cut down its costs in order to counter the downturn in the aluminum market.
What Freeport is