Freeport-McMoRan Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. FCX is a diversified copper, gold and molybdenum miner. Interim financial statements were reviewed by Ernst & Young, not audited.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $4.850 billion | $2.798 billion |
| Operating income (loss) | $1.532 billion | $(473) million |
| Net income (loss) attributable to common stockholders | $718 million; $0.48 diluted EPS | $(491) million; $(0.34) diluted EPS |
| Operating margin | 31.6% | (16.9)% |
| Cash from operating activities | $1.075 billion | $(38) million |
| Capital expenditures | $370 million | $610 million |
At March 31, 2021, cash and cash equivalents were $4.580 billion, total debt was $9.809 billion and net debt was $5.2 billion. FCX reported $3.5 billion of revolving-credit availability and $8.1 billion of total liquidity. Debt carried a 4.6% weighted-average interest rate. Current debt was $656 million, including scheduled 2022 maturities; FCX had no revolver borrowings and was in covenant compliance.
Consolidated copper production was 910 million pounds and sales were 825 million pounds. Average realized copper price was $3.94 per pound, versus $2.43; unit net cash costs were $1.39 per pound, versus $1.90. Gold production rose to 297,000 ounces from 156,000, while molybdenum production was 20 million pounds versus 19 million.
Material changes versus Q1 2020
- Revenue increased 73%, principally reflecting higher copper prices and sales volumes. Higher copper prices also drove favorable adjustments on prior-period provisionally priced sales: $146 million in Q1 2021 versus an unfavorable $107 million in Q1 2020.
- Common-stockholder income swung from a loss to profit. Q1 2020 included $222 million of unfavorable metals inventory adjustments, compared with $1 million in Q1 2021, and a $32 million after-tax debt-extinguishment loss.
- Operating cash flow improved by $1.113 billion, although Q1 2021 included $336 million of working-capital and other uses, mainly from higher receivables and inventory.
- Cash increased from $3.657 billion at December 31, 2020 to $4.580 billion at quarter-end; total debt increased from $9.711 billion to $9.809 billion, while long-term debt declined as amounts moved into the current portion.
Outlook, management commentary and risks
- Management cited solid execution, an on-schedule Grasberg underground ramp-up and a favorable operational and market outlook. It projected 2021 sales of 3.85 billion pounds of copper, 1.3 million ounces of gold and 85 million pounds of molybdenum.
- For 2021, FCX estimated operating cash flow of approximately $6.5 billion, assuming remainder-of-year average prices of $4.00 per pound copper, $1,750 per ounce gold and $11.00 per pound molybdenum. The estimate includes a $2.3 billion income-tax provision and $0.1 billion of working-capital and other uses. Management projected capital expenditures of approximately $2.3 billion, excluding greenfield-smelter estimates; separate 2021 smelter spending was estimated at $0.1 billion.
- Management expected consolidated copper-mine unit net cash costs of $1.33 per pound for 2021. It said the company could reach its $3–$4 billion net-debt target by year-end under current price, volume and cost assumptions. The Board’s financial policy provides for a $0.30 annual base dividend and a potential performance-based payout after reaching the target; future dividends remain discretionary.
- Major sensitivities in the filing: each $0.10-per-pound change in copper’s average price was estimated to affect 2021 operating cash flow by about $265 million; equivalent sensitivities were $70 million per $100-per-ounce change in gold and $90 million per $2-per-pound change in molybdenum.
- Indonesia’s government imposed a $149 million administrative fine over delayed greenfield-smelter progress. PT-FI recorded a $13 million charge for a potential settlement; the final amount could differ. Smelter development, export-license renewals, underground ramp-up and COVID-19 impacts remain significant operating and regulatory uncertainties. PT-FI’s export license was extended through March 15, 2022.
- Other notable items include a $68 million Miami smelter maintenance-turnaround charge and an expected Q2 reduction of approximately $60 million to net income from increased deferred intercompany profits. A proposed global talc-litigation settlement remained subject to bankruptcy-court approvals; a preliminary injunction temporarily stayed up to approximately 950 related lawsuits through June 30, 2021. Management reported no material change in previously disclosed risk factors.
- Commodity-price volatility, mine performance, shipment timing, taxes, working capital, environmental obligations, litigation and Indonesian smelter requirements could cause actual results to differ from projections.
Investor verification priorities
- Check realized copper prices and provisional-sales adjustments against subsequent settlement prices; 276 million pounds remained provisionally priced at quarter-end.
- Track Grasberg ramp-up, copper and gold volumes, unit costs, and whether the 2021 cash-flow and net-debt targets are achieved under actual commodity prices.
- Verify the resolution and final cost of the Indonesia smelter fine, construction schedule, funding requirements and export-license status.
- Monitor scheduled 2022 debt maturities, liquidity and covenant headroom, and distinguish consolidated cash from cash attributable to noncontrolling interests or held internationally.
- Follow the talc settlement approvals and other legal, environmental and asset-retirement contingencies; assess the effects of deferred intercompany profits and future discretionary dividends.