Freeport McMoran Copper & Gold Inc (FCX)
1Q/08: Capex Bulge a Down-payment on Growth
? Freeport beats on mine volumes — FCX reported operating EPS of $2.78 vs. our
estimate of $2.28 and consensus of $2.12. The GAAP result was $2.64 including
purchase accounting inventory charges. Strong gold production and better than
expected provisional pricing yielded upside to estimates.
? But costs are rising amid the commodity boom — Consolidated Copper production
in 1Q was off -5.0% QoQ, but above guidance. Site prodn/delivery costs swelled
15% QoQ; Equity costs net of byproducts were roughly $1.02/lb.
? Guidance — Production guidance was largely unchanged but unit cost projections
rose 6.2% due to high copper prices and diesel benchmarked to +$110/bbl crude.
Thus we are shaving EPS estimates in 08/09 by 4 – 7%. On the other hand, Citi
copper and moly forecasts are likely too conservative.
? Tenke capex climbs above greenfield peers — Tenke (DRC) capex is now $1.8 bln,
up 2x on escalation, infrastructure, and scope changes (+14% mill rate). This is
not a surprise. Capex/capacity appears high at $5.60/lb, double Safford (AZ). Yet
infrastructure capex is a down-payment an eventual expansion, possibly to 1bln
lbs/yr (4X), and accelerates social benefits.
? Positive on Copper, positive on Top Pick FCX — FCX shares have set records, but
remain inexpensive relative to Copper. We regard Copper as best among base
metals, and see compelling value in FCX due to high margins, low multiples, rich
FCF yield, and M&A potential. Making minor changes to estimates, while raising
the target to $145/sh. FCX is our Top Pick in metals.
Source: Page 11 of C's "North America Investment Daily," April 24, 2008 |
