Macquarie Sees 'Considerable Upside' In Freeport-McMoran Despite Plummeting Copper Prices

• Shares of Freeport-McMoRan, Inc. FCX have plummeted 57.46 percent year-to-date.
• Macquarie’s Aldo Mazzaferro has maintained an Outperform rating on the company, while lowering the price target from $22 to $18.
• Despite the commodity price estimates being lowered, Mazzaferro believes that the company would be able to outperform in 2016 and 2017.

The short-term and long-term copper and molybdenum price estimates have been lowered primarily due to industrial production slowing and cost curves falling, driven by the depreciation in the currencies of the emerging markets and the declining energy costs.

However, Mazzaferro believes that Freeport-McMoRan would be able to generate EBITDA of $8.0 billion and $8.4 billion in 2016 and 2017, respectively. “Freeport should be able to capture further gains by curtailing its unprofitable molybdenum production and optimizing uncompetitive copper operations,” Mazzaferro added.

The company has announced during the week ending September 18 that it had been able to raise $1 billion through the sales of 96.7 million shares “through an at-the-market stock issuance,” and that the company might consider raising another $1 billion if additional liquidity is required in future.

According to the Macquarie report, “The company still has the opportunity to sell, divest or find partners for some of its expansion projects and non-core assets that would also strengthen its balance sheet and improve liquidity.”

In addition, the company’s board is likely to approve a $0.05 per share cut in the dividend, which would help Freeport-McMoRan to save an additional $225 million per year.

The EPS estimates for 2015, 2016 and 2017 have, however, been reduced.