Freeport-McMoRan Inc. (FCX) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. FCX is a global copper, gold and molybdenum producer, with operations in North America, South America and Indonesia. Financial statements are unaudited; the independent accountant’s interim review identified no material modifications needed for GAAP conformity.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $5.824B | $5.003B | $16.950B | $17.022B |
| Operating income | $1.492B | $962M | $4.503B | $5.507B |
| Net income attributable to common stockholders | $454M | $404M | $1.460B | $2.771B |
| Diluted earnings per share | $0.31 | $0.28 | $1.01 | $1.90 |
| Operating cash flow | $1.236B | $758M | $3.959B | $4.070B |
| Capital expenditures | $1.178B | $836M | $3.462B | $2.422B |
Q3 copper production was 1.085 billion pounds and sales were 1.109 billion pounds; average realized copper price was $3.80/lb. Nine-month copper sales were 2.970 billion pounds at $3.87/lb. Q3 gold sales were 399,000 ounces at $1,898/oz; molybdenum sales were 20 million pounds at $23.71/lb. Consolidated unit net cash costs were $1.73/lb of copper in Q3 and $1.65/lb for nine months.
At September 30, cash and cash equivalents were $5.745B, current restricted cash $697M, total debt $9.405B and total equity $26.677B. Net debt was $3.2B, or $0.8B excluding net debt for the Indonesia smelter projects. FCX reported $3.0B of available capacity on its revolver; PT-FI and Cerro Verde had $1.3B and $350M available, respectively, with no borrowings outstanding on these facilities. The current ratio was approximately 2.9x.
Changes versus comparable periods
- Q3 revenue increased 16% and common-stockholder income increased 12% year over year, principally reflecting higher copper sales volumes and prices. Nine-month revenue was broadly flat, while common-stockholder income fell 47%, reflecting higher maintenance and supply costs and a lower FCX economic interest in PT-FI.
- FCX’s economic ownership of PT-FI fell from approximately 81% before January 1, 2023, to 48.76%; PT-FI remains consolidated. The change increased the share of earnings attributable to noncontrolling interests and makes year-over-year comparisons less direct.
- Nine-month copper sales declined to 2.970B pounds from 3.171B; gold sales declined to 1.164M ounces from 1.365M. PT-FI’s tolling arrangement with PT Smelting, effective January 2023, changed sales timing and working-capital needs. Anode-slime export delays also affected gold sales.
- Nine-month capital expenditures rose 43% to $3.462B, with Indonesia smelter spending a major contributor. Cash and cash equivalents declined from $8.146B at year-end 2022; debt declined from $10.620B.
Outlook, commentary and risks
- For 2023, FCX projected sales of 4.056B pounds of copper, 1.74M ounces of gold and 80M pounds of molybdenum. Q4 sales were expected to be about 1.1B pounds of copper, 580,000 ounces of gold and 20M pounds of molybdenum.
- Using stated Q4 price assumptions of $3.60/lb copper, $1,900/oz gold and $20/lb molybdenum, FCX forecast 2023 operating cash flow of approximately $5.4B, net of $0.5B of working-capital and other uses; 2023 capital expenditures of approximately $4.8B; and copper-mine unit net cash costs averaging $1.63/lb. These are estimates, not guarantees.
- Management described operating performance as strong, highlighted leach initiatives that produced 46M incremental pounds in Q3, and targeted an approximately 200M-pound annual production run rate from those initiatives by year-end. Cerro Verde recorded a quarterly milling-rate record.
- Indonesia regulatory exposure is significant. PT-FI received a copper-concentrate export license through May 2024 for 1.7M metric tons, but further approvals are needed beyond that date; approval to resume anode-slime exports was expected in Q4. PT-FI incurred $147M of export duties in Q3 under a revised Indonesian rule, which it disputes. A potential $55M administrative fine was accrued; if a separate smelter decree applies, an additional refundable deposit of about $370M may be required.
- The Manyar smelter was approximately 84% complete, with completion expected in mid-2024 and commissioning/ramp-up through year-end 2024. The timing, cost and operational ramp-up remain execution risks. PT-FI also awaits a response on release of a $135M assurance bond.
- Other items include $199M of nine-month environmental-obligation revisions, primarily for Pinal Creek and Newtown Creek; $142M of charges related to contested Peruvian tax rulings and $74M of related interest charges; and ongoing asbestos/talc settlement mediation, including a proposed $130M contribution by a subsidiary over seven annual installments, guaranteed by FCX. The company says no legal proceeding is currently expected to materially affect financial condition, but outcomes could affect individual-period results.
- FCX disclosed an August 2023 cybersecurity incident that temporarily disrupted parts of operations; expenses were immaterial and no material financial impact was reported through September 30. The company does not maintain cyber-risk insurance. Commodity prices, labor and supply costs, operating performance, taxes, export rules, environmental obligations and project execution remain material uncertainties.
Investor verification priorities
- Track PT-FI’s anode-slime export approvals, copper-concentrate export authorization after May 2024, and resolution of disputed export duties and potential fines.
- Check Manyar and precious-metals refinery construction progress, project spending, commissioning schedule and any required additional refundable deposit.
- Reconcile reported earnings and cash flow with the PT-FI ownership change, tolling-related sales deferrals, working-capital movements and noncontrolling-interest distributions.
- Compare actual 2023 sales, unit costs, operating cash flow and capital spending with management’s assumptions and guidance, particularly commodity prices and export duties.
- Monitor environmental-liability estimates, Peruvian tax disputes, the talc settlement process and any material effects from cybersecurity or other operational disruptions.