Freeport to Address Situation in Indonesia -- Earnings Preview

   By John W. Miller 
 

Freeport-McMoRan Inc. is scheduled to announce its third-quarter earnings before the market opens Tuesday, and host an analyst call at 10 a.m. EDT. Here's what you need to know:

EARNINGS FORECAST: Net income of 61 cents a share is expected, according to analysts surveyed by Thomson Reuters, compared with 87 cents reported a year earlier.

REVENUE FORECAST: Revenue of $6.2 billion is forecast, compared with $5.6 billion reported a year earlier.

 
   WHAT TO WATCH: 
 

--INDONESIA: Freeport continues to have issues in Indonesia, where it operates the Grasberg copper and gold mine, one of its principal global production sites. The company's shares declined after union officials reported Monday that some 10,000 workers at the mine would begin a month-long strike next week to protest recent fatal accidents at the mine. The company settled a dispute with the government earlier this year over export taxes by committing to build a smelter. Updates on both situations are expected Tuesday. "Indonesia will dominate the call," says one analyst.

--OIL AND GAS: Another focus will be on Freeport's oil and gas assets. The company, whose executives have a history in the oil and gas business, is trying to diversify away from its traditional metals portfolio. The company acquired Gulf of Mexico assets from Apache Corp. in May for $1.4 billion, and sold its Eagle Ford shale assets to Encana Corp., also in May, for $3.1 billion. It could sell other noncore oil and gas assets. "Their concept is to buy things at low costs that have reserves that aren't fully recognized," says Charles Bradford of Bradford Research Inc. "And they try to sell established assets where the price fully reflects what it's worth."

--COPPER: Freeport has been ramping up copper production by more than 10% per year, and analysts are looking for updates on when projects in Arizona and Peru will go into full production. That division has been profitable. A key ingredient in the making of home pipes and electrical wiring, copper has been relatively resilient. Copper prices dropped about seven percentage points in the quarter, to around $3 a pound. Freeport's cash costs are typically under $2 a pound, so it has been profitable. "But they haven't really hit their stride yet, because they don't have a stabilized baseline yet in Indonesia," says Jorge Beristain of Deutsche Bank. "And every time it seems they have that thing nailed down, another spring pops loose."

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