Hi everyone,Last Tuesday, Freeport McMoRan reported Q4 and full year 2012 results. http://www.fcx.com/news/2013/012213.pdf and http://www.fcx.com/ir/2013present/FCX4Q12CC_JAN13.pdf The company beat analyst estimates of $0.70 per share with $0.78 per share in earnings.Not a bad quarter and the future prospects look pretty good. The company spent 2012 going through some lower ore grade areas in the Grasberg (Indonesia) open pit mine, but that's going to change going forward, as it digs through some higher grade ore areas. That should increase copper and gold production there by more than 50% for copper and about 30% for gold. That'll give a nice boost to sales and cash flow over the next few years.Part of the benefit from this will be declining costs per pound produced, as well, as more metal is produced from the same amount of ore removed. In fact, beginning next year, the net cost per pound out of Grasberg should be negative (that is, they get more from selling the gold that's also mined than it costs to mine the gold plus copper).Further, the plans for shifting to 100% underground mining at Grasberg proceed and that should start ramping up over the next few years, while the open pit is scheduled to be finished in 2016. Just too deep and steep to go further, at that point.The company's also been spending quite a bit in order to increase production at many of their other mines and that should help matters going forward, as well.Looking at the market, increased auto manufacturing and home construction in the U.S. is increasing demand and there are indications that utilities are going to be working on their grids as well as all the stuff that needs to be replaced from the effects of Hurricane Sandy. Europe, on the other hand, is still slow, but China, management says, is picking up again. While all this doesn't necessarily mean higher prices for copper, it should bode well for copper prices and not let the price drop too much further. Another interesting thing of note is that most of the current capex is going to be dropping off over the next few years, so as mining volumes ramp up, capex will drop as projects finish. That's going to leave a lot of cash to reinvest elsewhere and might be part of why, I think, the company decided to go ahead with the acquisition of the two oil exploration company. Management said those companies throw off enough operating cash flow to fund capex there, but having the additional resources of the copper mining side won't hurt.I'm still not too happy with the purchase of MMR and PXP. The justification of diversifying into another commodity sounds good, but the board overlap between the two companies makes me think the decision wasn't 100% clean. Further, this exposes the company to the huge natural gas production area that is flooding the market right now and, until use dramatically picks up, is likely to cause natural gas to remain at very cheap levels. Deepsea oil exploration is fine, but I hope the company won't continue to pour resources down the bad well at Davey Jones that MMR was having so much difficulty with.Right now, I'm probably going to continue to hold the shares. The thesis is still intact (mostly) and I feel I have a decent enough understanding of the mining and oil businesses, unlike the situation with Nam Tai as discussed up board. Cheers,Jim
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