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Freeport-McMoRan Copper & Gold (FCX) |
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WIKI ANALYSIS
Freeport-McMoRan Copper & Gold Inc (NYSE:FCX) is a miner, smelter, and refiner of copper, gold, and molybdenum. Copper production represents over 80% of 2007 revenues, with FCX owning mining and smelting operations in North and South America, Indonesia, and Europe.[1] The company's total proven reserves in its three primary outputs range from 17 to 28 times 2007 output, with over a billion dollars already invested in developing what are estimated to be the largest undeveloped copper and molybdenum reserves in the world.[2]Prices for all three key outputs in the commodities markets have been at historically high levels since approximately 2004, leading to increased revenues for the company. Further increases in spot prices would lead to more positive financial effects, while any kind of downward corrections would lead to fairly elastic decreases in operating income. The no value-added products the company sells leaves it intimately vulnerable to commodity price fluctuations.
In March 2007, FCX acquired former American rival Phelps-Dodge, greatly expanding its copper output and reserves and entering the molybdenum market. Combined with existing mining holdings in Indonesia, Freeport-McMoRan is one of the world's largest mining companies.[3]
Corporate Overview
Freeport-McMoRan itself is a holding company, operating through three main subsidiaries: Phelps-Dodge, PT-Freeport Indonesia, and Atlantic Copper. Its operating segments are involved with mining, smelting, and refining copper, gold, and molybdenum.[4] Each subsidiary is either fully or majority-owned by FCX.
- Phelps-Dodge, a former rival purchased by Freeport-McMoRan for $25.9 billion in March 2007,[5] is responsible for the company's North and South American mining operations. Previously one of the largest copper miners and suppliers in the Americas, Phelps-Dodge continues to operate fully integrated mining, smelting, and refining outfits.[6]
- PT-Freeport Indonesia is responsible for FCX's Indonesian mining and controls the Grasberg mining operation, which contains the world's largest known reserve of gold and one of the largest copper reserves.[7] FCX effectively owns and controls over 90% of PT-Freeport, and the rest is owned by the Indonesian government. Since 1996, FCX has had a joint venture agreement with competitor Rio Tinto (RTP); under this agreement, Rio Tinto will gain a 40% total interest in the Grasberg operations after 2021, though it will also share a proportional amount of administrative and operating costs.[8]
- Atlantic Copper is Freeport-McMoRan's wholly-owned copper smelting operation based in Spain. In both absolute and relative terms, this is by far the smallest of FCX's subsidiaries, with relatively negligible impacts on both total revenue and net income.[9]
Chart detailing the geographical distribution and crucial asset ownership stakes of FCX's main operating segments[10]
Business Segments
Copper (82% of 2007 Mining Revenues)
Over 3/4s of FCX's revenues come from the sale of refined copper, of which over 75% is bought by third-parties for use in construction or the manufacture of electrical appliances and industrial machinery.[12] Worldwide copper consumption has been growing at an annualized rate of approximately 3.1% since 1990, representing a strong increase in demand for FCX's core product over the past two decades.[13] As of the end of fiscal year 2007, Freeport-McMoRan's total proven reserves of copper amounted to over 24 times 2007’s output.[14]
Molybdenum (12% of 2007 Mining Revenues)
Molybdenum, with useful applications in steel alloy production, is almost wholly mined by FCX's American operations.[15] As of the end of fiscal year 2007, Freeport-McMoRan's total proven reserves of molybdenum came to over 28 times 2007 output.[16]
Gold (6% of 2007 Mining Revenues)
Gold, which is used in jewelry and certain sensitive electronics, is mined primarily in Indonesia by PT-Freeport.[17] As of the end of fiscal year 2007, Freeport-McMoRan's total proven reserves of gold added up to over 17 times 2007's output.[18]
Business Financials
| Metric | 2005 | 2006 | 2007 |
|---|---|---|---|
| Total Revenue | 4,179 | 5,791 | 16,939 |
| Operating Income (Loss) | 2,177 | 2,869 | 6,555 |
| Net Income (Loss) | 995 | 1,457 | 2,977 |
| Diluted Earnings (Loss) Per Common Share ($) | 4.67 | 6.63 | 7.50 |
| Long-Term Debt | 1,188 | 661 | 7,180 |
| Total Shareholders' Equity | 1,842 | 2,445 | 18,234 |
| Operating Margin (%) | 52.1 | 49.5 | 38.7 |
| Net Profit Margin (%) | 22.4 | 24.1 | 16.3 |
The March 2007 acquisition of rival North American miner Phelps-Dodge was the key factor driving the noticeable jumps in FCX's revenue, shareholders' equity, and long-term debt between fiscal years 2006 and 2007.
References
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 7, 'Management's Discussion and Analysis'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ PD 2006 Form 10-K, Item 1, 'Business'
- ↑ 'Grasberg MineSite,' Global Infomine
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 7, 'Management's Discussion and Analysis'
- ↑ Freeport-McMoRan Company Profile - Organizational Structure
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 7, 'Management's Discussion and Analysis'
- ↑ FCX 2007 Form 10-K, Item 1, 'Business'
- ↑ FCX 2007 Form 10-K, Item 8, 'Financial Statements and Supplementary Data'
- ↑ FCX 2006 Form 10-K, Item 8, 'Financial Statements and Supplementary Data'
- ↑ FCX 2007 Form 10-K, Item 8, 'Financial Statements and Supplementary Data'
- ↑ FCX 2006 Form 10-K, Item 8, 'Financial Statements and Supplementary Data'
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