Freeport-McMoRan Inc. (FCX) is set to release its fourth-quarter 2014 results ahead of the bell on Jan 27, 2015. Last quarter, the mining company delivered a positive surprise of 3.23%. Freeport has beaten the Zacks Consensus Estimate in all of the trailing four quarters with an average positive surprise of 11.20%. For the fourth quarter, the Zacks Consensus Estimate for Freeport has declined by a penny to 37 cents per share over the last 30 days.
Let’s see how things are shaping up for this announcement.
Factors to Watch For
For the fourth quarter, Freeport expects consolidated sales from mines of 1 billion pounds of copper, 350,000 ounces of gold, 21 million pounds of molybdenum and 11.5 million barrels of oil equivalent (MMBOE).
The impact of price changes for the fourth quarter on consolidated unit net cash costs is expected to be roughly a penny per pound for each $50 per ounce change in the average price of gold and half cent per pound for each $2 per pound change in the average price of molybdenum. Cash production costs per barrels of oil equivalents (BOE) are expected to be around $24 per BOE for the quarter.
Freeport continues to progress with its expansion initiatives. The company is evaluating a potential large-scale milling operation at El Abra mine in Chile to process additional sulfide material and attain higher recoveries. At Cerro Verde, Peru, a large-scale concentrator expansion continues to advance. The roughly $4.4 billion project would provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. Currently, Freeport is also expanding mining and milling capacity at Morenci to process additional sulfide ores which would lead to incremental annual copper production.
At its Bagdad mine near Prescott in Arizona, Freeport has a significantly large sulfide resource, the capacity of which is more than double its mill rates.
Freeport is conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts where it currently operates. Favorable exploration results indicate opportunities for significant future reserve additions in North and South America and in the Tenke Fungurume minerals district. The drilling data in North America continues to reflect the potential for expanded sulfide production.
However, the Grasberg minerals district, the most significant operating asset for Freeport, is exposed to Indonesian political, economic and social uncertainties. Lingering uncertainties surrounding the mine (with regards to royalties, duties, operating costs and worker strikes) may weigh on Freeport’s stock. The mine remains susceptible to strikes, which could affect production as a result of reduced capacity.
Further, though Freeport is aggressively managing its costs of late, high production expense still remains a concern for the company. Ramp up activities at Morenci may drive costs higher in North America. Moreover, unit costs remain higher in South America as a result of lower volume.
Earnings Whispers
Our proven model does not conclusively show that Freeport will beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Ranks #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The Earnings ESP for Freeport is -16.22% — the difference between the Most Accurate estimate of 31 cents and the Zacks Consensus Estimate of 37 cents.
Zacks Rank #3 (Hold): Freeport currently holds a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks That Warrant a Look
Here are some other companies in the basic materials sector you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Hecla Mining. (HL) has an earnings ESP of +100.00% and a Zacks Rank #3 Hold).
Cameco Corporation (CCJ) has an earnings ESP of +24.14% and a Zacks Rank #3 (Hold).
Ryerson Holding Corporation (RYI) has an earnings ESP of +4.17% and a Zacks Rank #3 (Hold).
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