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Freeport-McMoRan Inc. (FCX)
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Copper climbs to 6-week high on floods in top buyer China
Monday July 26, 2021 07:41
Kitco NewsShare this article:
LONDON, July 26 (Reuters) - Copper prices rose on Monday as floods in top consumer China sparked demand hopes at a time when inventories were falling, while a softer dollar also supported prices.
Benchmark copper on the London Metal Exchange was up 0.8% to $9,593 per tonne by 1100 GMT after touching its highest since June 16 at $9,665. It was on track for a fifth straight session of gains.
Floods in central China, especially in the industrial and transport hub city of Zhengzhou in Henan province, have raised supply concerns and demand for rebuilding damaged infrastructure. Copper is mainly used in the construction and power industries and China accounts for about half of global copper consumption.
"Sentiment has brightened again in the last few days, reflected in the copper price," Commerzbank analyst Daniel Briesemann said, adding he believed copper was due for a correction, having hit a record of above $10,700 a tonne in May.
A Singapore-based trader said the market was pricing in disruptions to output from floods in Henan and demand for reconstruction.
INVENTORIES: On warrant copper stocks in LME-registered warehouses fell to 205,800 tonnes while metal in warehouses monitored by the Shanghai Futures Exchange fell to their lowest since Feb. 10 at 96,087 tonnes.
PREMIUMS: In a sign of rising physical demand in China, Yangshan premiums have climbed to $47.50 a tonne from recent lows of $21 touched in June.
SPREADS: The discount of LME copper over three-month contract narrowed to about $21 a tonne from about $40 a tonne two weeks ago. This was the tightest since July 7.
FED: The dollar softened as markets anticipated the outcome of a meeting by U.S. Federal Reserve for clues on the pace of monetary policy changes, which has implication for liquidity and base metals.
So, yesterday, after golf, I had to charge my e-Tron. Came back to my suburban city. There are 7 public chargers within the limits. They were all being used (including mine). My city is installing two more chargers. A local high rise is exploring alternatives to install 2-4 fast chargers for its residents. Once this building does that word will spread, and I expect at least 7-8 other high rises to do the same. Other localities are putting in chargers at city parks, shopping centers with grocery store anchors are putting in chargers (WF already has them). Even Walmart, which I don’t shop at, has them. I’m suggesting to Costco, to put it in as a member benefit (you put your member card and pay, but it will be Costco pricing, just a small profit margin on top of electricity price).
I realize this is all anecdotal, but we’re about to witness an incredible increase in the numbers of public chargers in my opinion.
Great morning everyone!
Thinking about the handling of our coming riches. Having met debt targets, cash will continue rolling in and I am concerned FCX has not been more open about their plans. I have seen some talk on this board and even analyst statements of cash return being some combination of dividend and share repurchase. NO, a thousand times NO.
Simply, i demand this be in the form of direct to shareholder cash returns. Not repurchase. Think about it?
Forward earning will have our PE well into single digits. Advantage to company in repurchase to to slightly improve PE, which will do nothing for us. And they would save dividends on shares bought back -- saving a whopping 1% -- a complete waste. Give your shareholders the cash, plain and simple. Our yield will be more enticing to prospective buyers than a small PE change.
Please guys, speak up about this!
What's going on in the copper market to explain the move we saw Friday and this morning?
Last week I posted a bear/bull case scenario for the CC. The sentiment on this board follows the ‘normal curve’ of perception and appears just ‘Neutral’… just presenting some facts:
No. FcX meets /beats sales est of 975 M lbs Cu and 330K oz of gold
Y. Grasberg on track or faster
No. S.A. mines much better and improving
Sorta. Same old bull case story of great copper market and shareholder returns in the future - but clearer announcement towards special dividend or buyback soon
Sorta. Some update on new US opportunities with timeline and potential volumes
Y. Smelter option finalized
N. Good answer if asked to address impact 2023 Grasberg ownership transfer (NOT ASKED)
Y. Earnings beat by a couple of cents above expectations
Y. OCF comes in over 1.6, FCF at least 1.2B and net debt down to under 4B
To each his/her own: IMO - this was a great CC for a company that trades on egg shells - led by the greatest copper bull, yet most conservative approach to projections and guidance!
From the CC Q&A:
- GS on why wait till the EOY to return cash to SH? Good answer from KQ that it is being evaluated, will return as promised, and slight hint in her hesitant tone that it could be earlier than EOY 2021
- GS on Grasberg ramp up completion… KQs positive thump was pretty much all of Q4 should be running full rates - a bit of acceleration.
- CLF from Jeffries - why no reflection on higher production from new projects- KQ said these will yield at least some additional output in 2023 - possibly in 2022. This was the closest to see if 2023 Grasberg transition was was being looked at for mitigation!
My take on FcX:
- Conservative and will manage smooth earnings profile - so a great beat on EPS is not in the cards
- Great focus on cash flow generation - they beat their previous guesstimate by 700M … and came in at 2.35B
- Will likely end up with 1.3B to 1.6B to return to shareholders this year… 90c to 1.1$ in Divvy or some buyback (their Sh Out has brown by 30M since June 2020… likely options issues)... and a similar amount left over for projects or further strengthening the balance sheet
- FcX does not have a history of carrying a lot of cash... why hold close to 10B if you are not buying down debt or making a big project investment... will create speculation of buying something which is not in the cards from RA and KQ over and over again!
Hence, I would not be surprised to see an earlier announcement on the SH return - cannot recall how they announced the special divvys (timing of) during the early 2010’s… history has a way of repeating itself. I called the reinstatement of divvy (30c/sh) announcement timing by looking at historical announcements!
Right now - its the Russian Roulette at the Options Casino table that is pegging the PPS… 35$ Max Pain strike price for today!
It is interesting that RIO, FCX and SCCO, in that reporting order have all come in at lower than expected Cu production (SCCO just reported). Don’t know what to conclude. Financials all look good thanks to pricing, just that production is short?
OT: But I thought I'd share because....well....let me share and then you decide.
Recall I mentioned that I had a kidney stone attack? This ended pretty much as you'd expect, after I felt it coming on and thought I could "man up" my way through it...you know...(chest thumps)....tough it out. Yeah....that went about as you might expect...by a certain Wednesday mid-morning I'm laying on the floor thinking..."I can do this! I can get thru this! I can do this!! I......CAN'T DO THIS!!"
Into the emergency room I went.
5 hours later, some nice IV drug that eliminated the pain, a CAT scan, some blood work-up and the like left me with the truth of the situation. A stone teetering on the edge of my bladder, just needing a liquid type nudge to be expelled. Get the picture? Prognosis? Drink lots of fluids. All total ~5hrs. A couple of nurses teaming in the ER pulling blood, a CAT-scan with attendant Technician, and the final opinion provided by an attending ER physician. Does that paint it well enough?
Okay...I finally get an email from my healthcare provider. Oh goody. I'd been expecting it. You wanna know what that little adventure into the wilds of the American medical system cost? Do ya, really? No...you don't....but I'm gonna share anyway...
Total Amount Billed: $37,519.42
Plan Discount: $31,656.42
Plan Paid: $3,519.62
HRA Paid to Provider: $1,767.57
I may owe: $575.81
Get that? I dam near fell out of my chair. Such is the state of the for profit medical "industry" I suppose. I won't bother with a further rant about this. I'll leave you to think about how YOU might be impacted by such an adventure.
I don't want to even THINK what the costs might have been if I'd had something truly horrific happen, like a heart attack involving surgery and an extended stay. If that happens then, from a cost standpoint, you might as well just shoot me!? I think I'll put something to that effect in my "do not resuscitate" type of will.
Thanks for tolerating this posting. I feel a lot better for sharing. How's'bout you? Now ON to the new week!
I feel the need to...alert, ALERT! Copper now $4.5023. It continues where it left off Friday afternoon. Still just as puzzling...but I won't be complainin'. G/L!
On the intraday what you're seeing is a classic, text-book example, of machine pattern and algo trading at it's finest. Double top right at the programmed Fib line, a dance around back to the downside. Bid now .42. Oh I am so going to eat well tonight....
Hey Krew, I did some FWIW data-plays on FCX and Cu ... as many have noticed, lately FCX is not fully keeping pace with the rise in Cu.
The following is suitable for printing or wrapping fish (where is that quote from?)
a) I created a FCX/Cu Multiple ("M") from Feb 26 to today
b) The midpoint day is May 11 where FCX hit its max SP of $44.71. Cu was $4.78, and M was 9.36.
c) The average M over the last 103 days is 8.59.
d) The highest M was June 1 @ 9.46, the lowest July 16 @ 7.66.
e) In the last 6 trading days, M has never been over 8.00.
f) Today was $35.19/4.41 = 7.99
Todays' multiple is about 7% below the average.
If today had closed at the average M, FCX would have been $37.83 (vs actual $35.19).
If today had closed at the highest M of 9.46, FCX would have been $41.70.
So FCX has to catch up or Cu is coming down to get into the average zone.
Please note: I am not attesting that the above is anything brilliant, incisive, directional, etc etc. Am just sharing, that's all.
Have a good week-end!
Dodge announced it will be going electric across all lines. home of the Hemi & 800 horsepower charger (still slower than tsla 0-60) ... months ago street is projecting 8-10 million ton cu short fall.... new EV announced.... adding to demand....... cu mines take 10 years to bring online.... not hearing about new discoveries???
On Bloomberg talking to James Athey, Aberdeen Standard Investment director ....about the crack-down going on in China.
"So where do you go? Do you invest in China with all they're doing and the uncertainty of it (my rephrasing)?" To which James basically humma humma humma....
My short, blunt, answer to my TV screen? "No. You don't invest in China. Period. But this don't mean you can't play off the market roiling that's going on."
Meanwhile watching FCX bid get dropped from $36.52 to .39 in about 2 minutes time...looks like a bunch of puppies in a bag wrestling right now....Umm...so to speak...
Have now read all of the earnings release on co website. My initial takes:
-- Production a bit less than April estimates provided.
-- Costs a bit higher than estimates.
-- Earnings a bit less than I expected.
-- Realized prices are stunning to me. Excellent.
-- Debt reduction exactly what I expected.
Street will see al this as a minor disappointment, at least initially.
Looking to next year is the exciting part. IF, and perhaps with recent shortfall more a concern, they reach their production goals and prices for sales hang where the are, 2022 would seem to be ~ $4 sh net. Current street estimates are ~ $3.6. And achieving the debt goals they are firmly setting the expectation of big time cash distributions.
On balance I am pleased. Long term looks very bright to me. Short term pop to bail me out on Aug calls much less than I hoped. Color from conference call, as it relates to 'math' of next year distributions are of primary interest to me.
Good luck folks. Numbers WILL continue to improve.
Bid went straight up to that old 50% Fib retracement line then rolled and went straight south. When it rolled that was my cue to close buy side trades and go short. Which I'm now riding with a trailing here at $35.98. I'll look to flip into a buy once it gets hit....
Management pays off all debt in next three quarters, while maintaining the puny dividend. At that point, management initiates a $1 per quarter steady dividend. Share price moves to 60-70, and dividend stays at $4 per year. Vanguard and Blackrock would be happy!
FCX -- 2Q21 EBITDA In Line; Strong Cash Flow Generation -- Morgan Stanley, July 22, 2021
Equal weight; Industry attractive; Price Target $38.00
2Q21 Highlights: Adjusted EBITDA of $2,678m was basically in line with our $2,694m estimate and consensus of $2,670m. Relative to our model, lower revenues were mostly offset by lower costs. Adj. EPS of $0.77 was slightly above consensus of $0.76, but in line with the $0.77 we had in our model.
Key takeaways: i) Cash from operations of $2,396m in 2Q21 was well above MSe of $1,774m; ii) 2Q21 copper sales volume was 929m lbs vs. MSe 975m lbs / guidance of 975m lbs (copper production volume was 913m lbs); iii) Gold sales volume was 305k oz, 8% lower than MSe of 330k oz / guidance of 330k oz (gold production volume was 305k oz); iii) Copper net cash costs were $1.48/lb, but included $0.07/lb non-recurring costs associated with labor-related charges at Cerro Verde – adjusting for that, net cash costs were in line with MSe of $1.41/lb and slightly better than guidance of $1.42/lb; iv) The company expects capex of ~$2.2b in 2021, including $1.4b for major projects, vs MSe of $2.6b (with an estimated $300m for the Indonesian smelter, not included in the company's guidance).
Outlook: FCX expects consolidated sales in 3Q21 at 1.035b lbs of copper (vs. MSe 1.005b lbs), 360k oz of gold (vs. MSe 370k oz), and 21m lbs of molybdenum (vs. MSe 21m lbs). Management guided to 3Q21 net cash costs of $1.33/lb, vs MSe of $1.19/lb. For the full year, consolidated sales increased slightly to 3.85b lbs of copper vs. 3.8b lbs previously MSe of 3.85b lbs copper, see Exhibit 1. The company expects FY2021 net unit cash costs to average $1.35/lb vs. MSe of $1.30/lb; guidance assumes gold prices of $1,800/oz and molybdenum of $16.00/lb for the remainder of 2021, vs. Morgan Stanley's deck of $1,785/oz and $15.00/lb.
I thought that the FCX Q2 results could best be described as “pedestrian", compelling few to sell the stock and few to buy. Profits were strong on a comparative basis but fully attributable to high commodity prices. Thus, higher profits were fully anticipated.
Copper production on a quarter-to-quarter basis -- other than Grasburg – was disappointing, causing some concern as to post 2022 revenues.
It is my experience that debt reduction does little for the stock price of healthy companies. The implication is that management could have found better uses for the money. Weak companies with stability concerns get a much bigger bang for reducing debt levels.
Management's reluctance to “consider” the return of cash to stockholders, in whatever form, (consideration now scheduled for April 2022) is consistent with FCX culture. One has to wonder if they are building a cash war chest for some other reason: concerns about the rest of 2021 or, more likely, some possible or pending opportunity to increase revenue.
If they go big, spending cash and acquiring more debt, talk of dividends/stock buybacks will cease, but revenue growth may energize the stock price.
The other side of the spectrum has FCX being acquired. Whenever I listen to an Adkerson presentation, I think about that as a possibility.
Gold 1,801 Copper 4.46 on the way to 4.50 this week FCX will move past 38.50 this week. Today 36.50 or better at market closing. Hope you shorts got out not really. China Market down over 1,100 points. FCX will increase this week around 7 to 11%. Good luck buy and hold.
Will FCX close above 37.00 Today ? Or will FCX fall below the FIB 36.60 ? I think 37 is in play.
Oh Putz? Where you at? I thought copper was going to $3.30?! Those are some amazing predictive skills you’ve got there. FCX is undervalued by $10 at least. Buy it with both hands. Let’s squeeze the shorts!! Copper is meme viral!!
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