Freeport (NYSE:FCX) Earnings Increase 10 Percent in Second Quarter

Freeport McMoRan Copper & Gold Inc. (NYSE:FCX) enjoyed a 10 percent increase in earnings in the second quarter, as higher copper and gold prices helped them to a strong showing, even though production numbers were down.

The miner earned $1.49 a share after excluding one-time items, far above the $1.34 a share analysts had been looking for.

Copper prices surged 38 percent higher on average during the quarter, leading the earnings gains. Copper entails about 75 percent of all sales by Freeport.

Gold also helped the company, as prices were at $1,234 an ounce on average during the second quarter. That was up by 32 percent over last year, which averaged $932 an ounce during the same quarter.

Revenue grew to $3.86 billion a gain of 5 percent, from $3.68 billion last year. Analysts had been looking for $3.66 billion. Again, this was led by higher prices and not increased production.

To get an idea of how the stronger prices helped the company, production last year for copper during the same time period was 1.1 billion pounds, while the most recent quarter was 914 million pounds.

Gold production was at 298,000 for the most recent quarter.

Guidance for the year remained the same, with production of copper estimated at 3.8 billion pounds, and gold production expected to reach 1.8 million ounces. Molybdenum, which could perform strong if the demand for steel increases, which is expected, has an estimated 63 million pounds to be produced for the year.

Freeport was up to $66.74 in New York as of 1:26PM EDT, gaining $2.42, or 3.76 percent.

Freeport-McMoRan (NYSE:FCX) Declares Dividend

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) declared a quarterly dividend on Thursday of $0.30 a share, which will be payable to common stock holders of record as of July 15, 2010, and will be distributed on August 1, 2010.

The Freeport Board of Directors originally announced an annual dividend of $1.20 a share in April, payable in $0.30 increments on a quarterly basis.

The 52-week range of Freeport has been $43.19 to $90.55, closing today at $63.44, a drop of $1.62, or 2.49 percent.

While copper prices have risen over the last three days, demand has plunged along with new housing starts in America, along with China cooling off their hot urban property markets as well.

Freeport (NYSE:FCX) Vulnerable to Weak Housing Market

The recent news that housing starts in the U.S. plunged after the tax credit ended, wasn't good news for copper producer Freeport McMoRan (NYSE:FCX), which has also faced bad news, along with other copper producers, over the Chinese battling inflation in their property market by raising interest rates and limiting the number of properties people can buy.

Add to that increasingly bad economic news from the European Union over its sovereign debt crisis, and as far as their copper business, Freeport is going to struggle for some time, as not much in the way of good economic news is coming from anywhere, confirming we may not have ever left the recession, or at minimum, we're going experience a double-dip recession heading into summer.

There can be no doubt copper prices will fall along with demand, as already seen today in London, where prices fell by 2.5 percent early in the session.

Although Freeport of course mines other metals, copper is their mainstay, and they will be most affected by what happens there, and going forward there isn't much positive to show there is something that will cause copper demand to increase.

Freeport-McMoran (NYSE:FCX) and Uncertainty Over Copper Prices

Freeport-McMoran (NYSE:FCX) is largely dependent on the price of copper as to its success, and the news today that Europe allegedly had improvement in their industrial sector last month added more to the confusion if copper prices than helped it.

As a result, puts and calls were made on both side of the trader aisle, reflecting the uncertainty of the copper market.

Conflicting news and data are behind the uncertainty, as the sovereign debt crisis in Europe threatens the stability of the region, and yet somehow the industrial sector is said to have improved.

Something obviously isn't right there, and traders know there is some type of dishonesty going on, but aren't sure which way to bet against it.

For those who want to invest in Freeport-McMoran, we need to take the demand side of the equation and forget about the countradictory news which on the one side is fueled by government and mainstream media who want the more positive side of things to be the narrative, rather than the obvious challenges facing the region.

Freeport McMoRan's (NYSE:FCX) Low-Cost Strategy

There are several mining companies taking a different route to generate earnings, and one of them is Freeport McMoRan (NYSE:FCX), which has decided to cut costs out of the production side of the business.

While this all looks obvious as a strategy, the reasoning behind it is much more important than just generating better margins and earnings.

What is does is prepare for what is a cyclical business in order to generate profits in the up as well as down times.

Strong interest has come back to the mining companies, and those that respond by acting like an easy to understand business will outperform rivals who allow themselves to be taken on the winds of the market place, with little or no control of their destiny.

Those miners like Freeport, who in the case of copper, for example, have driven down production costs from $1.04 a pound to 62 cents a pound, are positioning themselves to thrive in any economic climate.

Probably even more important, it frees up capital to take advantage of the cyclical nature of their business, giving them opportunties to buy competitors who may be struggling because they aren't prepared as well.

I think those mining companies, no matter what the particular raw material they're mining, who will be the most profitable in the future will be those tackling the cost of doing business and who have room for pricing moves which won't hurt them that their competitors don't have.

Freeport has that, and going forward they should do well for those investing in the company.

Freeport-McMoRan (NYSE:FCX), Copper and China

Freeport-McMoRan Copper & Gold (NYSE:FCX) has been under pressure lately based on slowing imports of copper by China.

For May, the number of metric tons imported dropped to 396,712, a decline of 9.1 percent from April, and 6.1 percent from May of 2009.

While copper imports from China are up 8.2 percent in 2010 over 2009 at the same time last year, that is expected to continue falling through the rest of the year.

All of this is the result of urban centers in China whose property markets have skyrocketed, generating inflation pressure and concerns, which resulted in regulatory measures and the raising of interest rates to cool them off.

The rural areas aren't as affected, and so the idea of a Chinese housing bubble is overplayed, as they're located almost solely in the large cities.

Either way though, Freeport and others with strong exposure to copper will be under pressure for some time, at least as far as prior expectations of a China growth rate in the lower double-digits.

That will probably fall to around 7 to 8 percent, which many feel would a much healthier and predictable China.

There will be a temporary drop in raw material demand in China, but once things smooth out, companies should be able to make more accurate projections of sustainable growth.

But add this to problems in Europe and a stagnant American economy, and times are going to be tough for a while.

Freeport-McMoRan (NYSE:FCX) Earnings Estimates Lowered by Deutsche Bank (NYSE:DB)

Freeport-McMoRan Copper & Gold (NYSE:FCX) had its earnings estimates lowered today by Deutsche Bank (NYSE:DB) analysts, although the financial giant kept its "Hold" rating on them.

The changed was based solely on the lack of support in copper prices which continue to go lower on shrinking demand and continued expectations that will be the case going forward.

Deutsche Bank analysts said, “We now look for 2Q10 EPS of $1.31, 28% lower than prior estimates of US$1.81 and 34% lower QoQ. Revised 2Q10 EPS now 17% below Bloomberg consensus of $1.59. While FCX share price has entered attractive territory, we are concerned that near-term earnings weakness could impede sustained rally and await better entry.”

Freeport's performance will be in line with copper prices, and earnings will move in unison with them, which will give them some tough times ahead.

Freeport-McMoRan (NYSE:FCX) Upgraded by HSBC (NYSE:HBC)

Freeport-McMoRan (NYSE:FCX) was upgraded from "Neutral" to "Overweight" today by HSBC (NYSE:HBC).

While upgrading Freeport, at the same time the price target was lowered from $85 to $80 by the financial institution.

Freeport has plunged by over 22 percent over the last month over fears copper prices will decline even more as China battles inflation in its property market which will result in lower orders which will put more downward pressure on copper.

Since Thursday of last week Freeport has dropped by over 15 percent, although they were up to $59.97 a share, a gain of $1.31, or 2.23 percent at 10:49 AM EDT.

Freeport-McMoRan (NYSE:FCX) Says Copper Concentrate Down for Next Three Years

Freeport-McMoRan (NYSE:FCX) senior vice president of marketing and sales Javier Targhetta said today the copper concentrate market will suffer a shortfall over the next three years because of 2008 prices which caused mining projects to be delayed.

Of course add the current plunge in prices to the mix, and it's hard to tell how extended that shortfall will be if demand picks up.

Estimates are there will be a fall of between between 500,000 metric tons and 1 million tons in 2010.

“The concentrate market will remain tight over the next three years, or even longer,” said Targhetta.

It's hard to tell what type of effect this will have on the short term, as scrap is helping meet demand around the world, and it's unknown how long that will last, and if it'll end up causing shortages which will cause prices to rise.

Eventually that will be a certainty, but the current economic conditions in China, Europe and the U.S., make demand possibly a less worrisome part of the equation, as it continues to drop in relationship to copper.

Short term this will probably be meaningless, and it'll depend on how long shortage last as to what the price of copper will be going forward.

Copper concentrate is what is used to produce copper.