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What Fueled Freeport-McMoRan Copper & Gold Inc. (FCX)’s Earnings

Shares of newly minted global resource company, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), are up over 3% after the company reported its second-quarter earnings. The company beat Wall Street’s earnings estimate, though its revenue was a little light. Let’s take a quick look at what went down in the quarter.

Fueling the numbers
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s profit came in at $482 million, or $0.49 per share, for the second quarter. While that’s well below last year’s second-quarter showing of $710 million in profit, or $0.71 a share, it’s well above estimates which were for the company to earn just $0.39 a share. Revenue, however, was a little light at just $4.29 billion, as the Street was expecting $4.39 billion. That begs the question: How did the company crush earnings estimates even as revenue came in light?

In one word: oil. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s $19 billion acquisition of a pair of oil and gas companies added $265 million in net income and $0.27 per share to its profits for the quarter. These results only include about a month’s worth for both companies because the two deals didn’t close until early June. If Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) didn’t make these big bets, then the quarter would have been much worse.

Instead, high oil prices this past June helped pad Freeport’s bottom line. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) was able to realize $97.42 per barrel of oil produced, which was about 94% of the price of Brent crude that month. When adding back natural gas and liquids, the company was able to realize revenue of $74.37 per barrel of oil equivalent against low production costs of just $16.58 per barrel oil equivalent, leading Freeport to pocket the difference as a very nice profit.

Tarnished metals
Without the addition of oil and gas, the quarter would have been pretty bleak. The tragedy at its Grasberg mine, which resulted in 28 fatalities and another 10 injuries, caused the company to suspend operations at the mine. The suspension of operations cost the company 125 million pounds of copper production and another 125,000 ounces of gold production in the quarter. On top of this, the company battled lower copper and gold prices, which caused it to realize less value for the copper and gold that it was able to produce.

The Grasberg mine. Source: Alfindra Primaldhi (Wikimedia Commons).

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) was still able to produce 951 million pounds of copper in the quarter, which was up from 927 million pounds from the second quarter of last year. However, falling copper prices led to an average realization of $3.17 per pound, which is down from $3.53 in last year’s second quarter. Where the effect of the Grasberg situation was most felt was in Freeport’s gold operations.

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