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Freeport-McMoRan: Another Opportunity

Summary

Apart from an improvement in copper prices, Freeport-McMoRan is on track to benefit from higher oil prices that will have a positive impact on its EBITDA and cash flow.

For a $5 change in oil prices, Freeport-McMoRan sees an addition of $175 million to its EBITDA and $140 million in operating cash flow, which is good news for investors.

Oil prices are already above Freeport-McMoRan’s forecasted levels of $37 per barrel for 2016, and it is likely that the situation will improve further.

Oil demand in 2016 is slated to grow to 94.18 million bpd from 92.98 million bpd last year, while non-OPEC supply will drop by 730,000 bpd, improving the demand-supply balance.

In an article on Freeport-McMoRan (NYSE:FCX) earlier this week, I had told investors why they should be buying the weakness in the company's stock due to strong prospects in the copper market. I had written that article because Freeport shares were sliding on the stock market at the beginning of April, but it looks like recent developments have brought about an improvement in the company's performance on the market.

For instance, copper prices have started moving up once again, driven by strength in Chinese imports that increased 36% in March as against February, hitting record highs of 570,000 tons. But, apart from the improvement in copper prices, another key reason why Freeport shares could be improving is because of the recovery in oil.

Now, a recovery in oil prices will have a positive impact on the EBITDA profile of Freeport, and given the developments in the oil market of late, I won't be surprised if the company receives a boost from this segment as the year progresses. Let's see why.

Why an oil recovery is good news for Freeport

Oil is expected to play an important role in improving Freeport-McMoRan's EBITDA performance in...


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