Freeport-McMoRan Inc (NYSE:FCX) upward movement on the chart has halted at the $12 level. Several analysts were expecting a breakout after the market reacted positively despite company’s dismal performance in 2Q2016. It should be noted that the company released a plan towards achieving free cash flows in the challenging commodity environment in last quarter of 2015.
The developments
The financial report of 2Q2016 highlighted significant improvements in the free cash flow and further evaluated the plan of the copper miner to unload its several assets at low commodity prices. Freeport-McMoRan reported that including working capital sources, its operating cash flows came at $874 million, higher than the capital expenditures of $833 million.
It was a massive improvement over the cash burned by operations in 2Q2015. As well, it showed the sequential improvement 1Q2016 after company reported cash-burn of $240 million earlier in the year.
Due to lower expenses from copper mining, the company expects operating cash flows to come at around $2.9 billion in 2H2016 from $1.6 billion in 1H2015. This improvement in free cash flow is being reflected with even more cuts in capital expenditures. The copper miner expects free cash flow of almost $1.4 billion for FY2016.
The unsolved queries
All of the promising factors in 2Q2016 question why Freeport-McMoRan sold so many assets despite having adequate free cash flow. Also, it is not clear as to why the company is still planning for a common stock offering when the debt position is under control.
Maybe it is forewarning that management fears declining copper prices, but the firm continues to estimate copper deficits in the imminent future. The firm has reported prospective deals worth $4.4 billion, including the open Tenke deal valued at $2.65 billion. Freeport-McMoRan even terminated deepwater drilling rigs for stock and cash valued at $540 million and $755 million, respectively.
