Freeport-McMoRan Inc. (FCX) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise stated. FCX is an international copper, gold and molybdenum miner, with major operations in North America, South America and Indonesia. Financial statements are unaudited; the independent accountant’s review identified no material modifications needed for GAAP conformity.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $6.603 billion | $4.850 billion |
| Operating income | $2.809 billion | $1.532 billion |
| Net income attributable to common stockholders | $1.527 billion | $718 million |
| Diluted EPS | $1.04 | $0.48 |
| Operating cash flow | $1.691 billion | $1.075 billion |
| Capital expenditures | $723 million | $370 million |
| Cash and cash equivalents, at period end | $8.338 billion | $4.580 billion |
| Total debt, at period end | $9.621 billion | $9.809 billion |
- Revenue rose 36%, while common-stockholder net income more than doubled. Approximate operating margin increased to 42.5% from 31.6%; approximate common-stockholder net margin increased to 23.1% from 14.8%.
- Improved results reflected higher copper and gold sales volumes and realized prices, partly offset by higher energy and other input costs, income taxes, royalties and export duties. Copper sales excluding purchases increased to 1.024 billion pounds from 825 million; gold sales increased to 409,000 ounces from 258,000.
- Average realized prices were $4.66/lb for copper, $1,920/oz for gold and $19.30/lb for molybdenum, up 18%, 12% and 66%, respectively. Copper production was 1.009 billion pounds; gold production was 415,000 ounces.
- Operating cash flow included $811 million of working-capital and other uses, versus $336 million in Q1 2021. The company cited timing of concentrate purchases ahead of Atlantic Copper’s maintenance turnaround and additional tax payments.
- Reported consolidated net debt was $1.283 billion, down from $1.382 billion at year-end 2021. FCX reported $1.365 billion of current debt, including $995 million of notes due March 2023 and a $325 million Cerro Verde term loan due June 2022. Its revolving facility had about $3.5 billion available and no borrowings.
- Dividends declared were $0.15 per share, comprising base and variable components of $0.075 each. FCX repurchased 12.3 million shares for $541 million during the quarter.
Outlook and management commentary
- 2022 sales guidance: 4.254 billion pounds of copper, 1.6 million ounces of gold and 80 million pounds of molybdenum. Q2 sales were expected to approximate 1.0 billion pounds of copper, 405,000 ounces of gold and 21 million pounds of molybdenum.
- Assuming specified commodity prices and current volume and cost estimates, management projected 2022 operating cash flow of about $8.6 billion, after $0.9 billion of working-capital and other uses; capital expenditures of about $4.6 billion, including $1.4 billion for Indonesia smelter projects; and copper-mine unit net cash costs of $1.44/lb. These are forward-looking estimates, not guarantees.
- Management cited long-term copper demand from electrification and the energy transition, alongside supply constraints. It also reported significant inflation in energy and other consumables, with added supply-chain pressure from Russia’s invasion of Ukraine.
- Grasberg underground milling averaged 186,500 metric tons/day; management expected about 180,000–190,000 for the remainder of 2022. Cerro Verde averaged 394,400 metric tons/day, with roughly 400,000 expected for the balance of the year, subject to COVID-19 protocols.
Material changes, risks and unusual items
- PT-FI completed a $3.0 billion senior-note offering in April 2022, after quarter-end, with proceeds intended mainly for smelter projects, refinancing its term loan and general corporate purposes. Its revised greenfield smelter schedule targets completion as soon as feasible in 2024; the company’s commitment is to develop additional domestic capacity, subject to applicable terms and force majeure provisions.
- PT-FI paid a $57 million Indonesian administrative fine in March and recorded a $41 million Q1 charge after previously accruing $16 million. It disputes any further fines, which could be significant. Its concentrate export license was extended through March 19, 2023.
- Bagdad increased its asset-retirement obligation by $45 million for an updated closure strategy. Morenci’s forthcoming closure-plan update, and updates at other Arizona sites, could also increase costs significantly.
- At March 31, FCX had 473 million pounds of provisionally priced copper sales, recorded at an average $4.71/lb. The filing estimates a $15 million effect on 2022 common-stockholder net income for each $0.05/lb change in the final realized price.
- Key exposures include commodity-price volatility, inflation and supply-chain constraints, operating and shipment variability, underground mining risks, Indonesia export-license and smelter milestones, environmental and closure obligations, and political, regulatory and COVID-related developments. The filing reports no material change in risk factors or market risks for the quarter.
Important facts for investors to verify
- Actual copper, gold and molybdenum volumes, realized prices and costs against 2022 guidance and its price assumptions.
- Progress, funding and schedule for the Indonesia smelter projects, and any changes to export-license terms or potential fines.
- Debt maturities and use of proceeds from PT-FI’s April 2022 notes; confirm how reported liquidity and net debt evolve after issuance and refinancing.
- Final settlement prices for provisionally priced copper sales, and the resulting revenue and earnings effects.
- Updated closure-cost estimates, particularly at Bagdad and Morenci, and any material environmental or legal developments.
- Actual capital spending, working-capital needs, shareholder distributions and progress against the company’s cash-flow projections.