Freeport-Mcmoran Inc.: Higher Cost and Capex Guidance Dampens Outlook

Metals & Mining
Freeport-McMoRan Inc.
Global Equity Research FCX-N: US$46.64 Target: US$41.00 Rating: Sector Perform
Old: US$43.00
Daily Edge | After Close
Wednesday, January 25, 2023
Higher Cost and Capex Guidance Dampens Outlook
Analyst Team

OUR TAKE: Mixed. FCX reported better-than-anticipated Q4/22 results. Although multi-
Orest Wowkodaw, CPA, CA, CFA | Analyst
Scotia Capital Inc. - Canada | 416-945-4526
year volume guidance was largely in line with our expectations, cost and capex guidance was

markedly higher. The company noted that customer demand for its copper products remains
Daniel Sampieri, CPA, CA, CFA | Associate Analyst
Scotia Capital Inc. - Canada | 416-863-7623
healthy. Overall, we view the update as largely mixed for the shares.
Pertinent Data
Despite high leverage to Cu and a strong balance sheet, we rate FCX Sector Perform based on
Rating Sector Perform
1-Yr. Target US$41.00
valuation. Our revised 12-month target of $41.00 per share (from $43.00) is based on a 50/50
FCX-N US$46.64 mix of 8.0x our avg. 2023E-2024E EV/EBITDA and 1.8x our updated 8% NAVPS estimate.
1-Yr. Return -10.8%
Div. (NTM) $0.60 KEY POINTS
Div. (Curr.) $0.30
Yield (Curr.) 0.6% Q4 results beat. The Q4/22 adjusted EPS of $0.52 was above our estimate and consensus
NAVPS $24.17 of $0.47. Adjusted EBITDA of $2.25B was 12% above our estimate of $2.01B and 8% above
This report is intended for replaceme@bluematrix.com. Unauthorized distribution of this report is prohibited.
P/NAV 1.93x consensus of $2.08B due to higher sales and better costs. EBITDA increased by 48% q/q.
Quant Ranking 79
Valuation: 50/50 weighting of 8.0x avg. 2023E-2024E
EV/EBITDA and 1.8x 8% NAVPS
Higher cost and capex guidance dampens outlook. Updated 2023-2025 Cu sales guidance

of 4.2 Blbs, 4.2 Blbs, and 4.2 Blbs was largely in line with our prior estimates of 4.3 Blbs, 4.2
Pertinent Revisions
Blbs, and 4.0 Blbs, respectively. Similarly, updated 2023-2025 Au sales guidance of 1.7 Mozs,
New Old
1-Yr. Target US$41.00 US$43.00
1.8 Mozs, and 1.6 Mozs, was more or less in line with our estimates of 1.8 Mozs, 1.7 Mozs, and
Adj EPS23E $1.25 $1.74 1.5 Mozs. Maiden 2023 Cu cash cost guidance of $1.60/lb (assuming $1,900/oz Au and $20/
Adj EPS24E $1.75 $2.03 lb Mo) was 8% higher than our estimate of $1.48/lb. Moreover, after normalizing for assumed
NAVPS $24.17 $26.87 by-product credit prices, the 2023 Cu unit cost guidance was 17% higher than anticipated.
New Valuation: 50/50 weighting of 8.0x avg. Updated 2023-2024 capex guidance (excluding the new Indonesian smelter investment) of
2023E-2024E EV/EBITDA and 1.8x 8% NAVPS
$3.4B and $3.0B compared withour prior forecasts of $3.3B and $2.4B (or +12% combined).
Old Valuation: 50/50 weighting of 10.0x avg.
2023E-2024E EV/EBITDA and 1.8x 8% NAVPS

No incremental progress on shareholder returns; balance sheet in strong shape. FCX
Capitalization
exited Q4/22 with modestly higher net debt of $2.5B (or $1.72 per share) vs. $2.1B (or $1.47
Market Cap. (M) $67,115
per share) as at Q3/22. The company generated negative FCF of $205M in the quarter (but
Net Debt + Pref. (M) $2,112
Enterprise Value (M) $69,227 positive FCF of $0.9B in 2022). FCX has not repurchased any common shares since mid-July
Shares O/S (M) 1,439 under its $5.0B buyback program ($1.8B total repurchases; $3.2B remains available).
Float O/S (M) 1,433
Negative revisions; elevated valuation. Our revised 2023E-2025E EBITDA estimates of
$7.4B, $9.7B, and $11.4B decreased by an average of 7% pa due to higher costs. Similarly, our
updated 8% NAVPS of $24.17 decreased by 10%. FCX shares are trading at 2023E-2024E EV/
EBITDA multiples of 10.3x and 8.1x and at a P/NAV of 1.84x vs. the peers at 7.7x, 7.5x, and 1.16x.
Price/Cash
Qtly Adj EPS (FD) Q1 Q2 Q3 Q4 Year Flow
2022A $1.07 $0.58 $0.26 $0.52 $2.44 10.7x
2023E $0.22 $0.32 $0.31 $0.40 $1.25 13.2x
2024E $1.75 9.0x
2025E $2.32 8.1x
(FY-Dec.) 2022A 2023E 2024E 2025E

CFPS $3.54 $3.40 $5.00 $5.53
FCFPS $0.57 $-0.47 $1.37 $2.15
Revenues (M) $22,780 $22,215 $24,289 $26,198
Volume and Closing Price for FCX-N
EBITDA (M) $9,522 $7,406 $9,726 $11,391
50 55
Copper Prod (000 t) 1,911 1,887 1,896 1,884
50
40 Copper Price (US$/lb) $4.00 $3.65 $4.00 $4.50
45 Copper Cash Cost (US$/lb) $1.50 $1.69 $1.54 $1.63
30 40
Vol (M)
Historical price multiple calculations use FYE prices. All values in US$ unless otherwise indicated.
Price
20 35 Source: FactSet; company reports; Scotiabank GBM estimates.

30
10
25
Production: January 25, 2023, 17:17 ET. Dissemination: January 25, 2023, 17:24 ET.
0
Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23
20 For Reg AC Certification and important disclosures see Appendix A of this report. Analysts
Volume FCX-N employed by non-U.S. affiliates are not registered/qualified as research analysts with
Source: FactSet. FINRA in the U.S. unless otherwise noted within this report.

Q
4/22 Results Beat on Higher Sales and Lower Costs
The Q4/22 adjusted EPS of $0.52 was above our estimate and consensus of $0.47. Adjusted earnings
were +99% q/q and -46% y/y driven by higher and lower realized copper prices. The major variances to
our estimates and history are summarized in Exhibit 1.
Exhibit 1 - FCX Q4/22 Variances

Reported BNS Est. Variance Reported Variance Reported Variance
Q4/22A Q4/22E BNS Est. Q3/22A QoQ Q4/21A YoY
Consolidated Payable Production
Copper (mlb) 1,070 1,021 5% 1,056 1% 1,033 4%
Gold (koz) 472 422 12% 448 5% 405 16%
Molybdenum (mlb) 22 20 9% 19 16% 22 -2%
Consolidated Sales
Copper (mlb) 1,042 1,021 2% 1,060 -2% 1,020 2%
Gold (koz) 458 422 8% 480 -5% 395 16%
Molybdenum (mlb) 19 20 -1% 17 18% 21 -7%
Realized prices
Copper ($/lb) $3.77 $3.72 1% $3.50 8% $4.42 -15%
Unit cash costs

Copper ($/lb) $1.53 $1.67 -9% $1.75 -13% $1.29 19%
EBITDA ($ millions)
Mining $2,460 $2,188 12% $1,663 48% $3,183 -23%
Corporate Eliminations and Other ($209) ($176) -19% ($138) nm $25 nm
FCX Overall EBITDA $2,251 $2,012 12% $1,525 48% $3,208 -30%
Income Statement ($ millions)

Revenue 5,758 5,697 1% 5,003 15% 6,164 -7%
Production and delivery costs -3,522 -3,465 2% -3,366 5% -3,154 12%
Depreciation, depletion and amortization -515 -514 0% -508 1% -568 -9%
Gross margin 1,721 1,718 0% 1,129 52% 2,442 -30%
Gross margin % 30% 30% 23% 40%
SG&A -107 -100 7% -98 9% -94 14%

Exploration and research -28 -25 12% -38 -26% -19 47%
Other -56 -95 nm -31 nm -24 133%
Operating Income 1,530 1,498 2% 962 59% 2,305 -34%
Net interest income (expense) -137 -120 14% -140 2% -171 20%
Other income (expense) 143 0 0% 45 nm -161 189%
Income before taxes and affiliate earnings 1,536 1,377 12% 867 77% 1,973 -22%
Income taxes -557 -523 6% -315 -77% -625 11%

Implied effective tax rate 36% 38% -5% 36% 0% 32% 14%
Earnings from affiliates -2 0 0% 8 -125% 10 -120%

Net income 977 854 14% 560 74% 1,358 -28%
Net income to non-controlling interests -280 -184 -52% -156 -79% -252 -11%
Earnings from discontinued operations 0 0 0% 0 0% 0 0%
Net income attributable to FCX common stock 697 670 4% 404 73% 1,106 -37%
Adjustments 51 0 0% -29 276% 315 -84%

Adjusted Net income attributable to FCX common stock 748 670 12% 375 99% 1,421 -47%
Reported EPS - Basic $0.48 $0.47 4% $0.28 72% $0.75 -35%

Reported EPS - Diluted $0.48 $0.47 4% $0.28 72% $0.75 -35%
Adjusted EPS - Basic $0.52 $0.47 12% $0.26 99% $0.96 -46%
Adjusted EPS - Diluted $0.52 $0.47 12% $0.26 99% $0.96 -46%
Source: Company reports; Scotiabank GBM estimates.
Q4/22 consolidated revenue of $5.76 billion was 1% above our estimate of $5.70 billion. Q4/22 adjusted
EBITDA of $2.25 billion was 12% above our estimate of $2.01 billion and 8% above consensus of $2.08
billion due to higher volumes and better costs. Adjusted EBITDA was +48 q/q and -30% y/y largely due
to volatile copper prices. The effective tax rate of 36% was slightly below our estimate of 38%.
Solid Operational Results
Cu and Au sales of 1.04 billion lbs and 458,000 ozs were 2% and 8% above our forecast (and guidance)
of 1.02 billion lbs and 422,000 oz, respectively. Copper sales were -2% q/q but +2% y/y, while gold sales
were -5% q/q and +16% y/y as Grasberg underground production has now largely ramped up. Copper
production of 1.07 billion lbs and gold production of 472 thousand ozs were +3% and +3% relative to
sales volumes.

Global Equity Research 2

Q4/22
copper cash costs of $1.53/lb (vs. $1.75/lb in Q3/22) were 9% better than our estimate of $1.67/
lb. We detail Freeport’s Q4/22 copper production, sales, and cash costs by segment in Exhibit 2.
Exhibit 2 - FCX Production, Sales, and Cash Costs by Segment

Sequential Yr-Over-Yr
Reported BNS est Variance Variance Variance
Q4/22A Q4/22E BNS Est. Q3/22A QoQ Q4/21A % change
Payable Copper Production (mlb) - Consolidated
North American Copper Mines 358 341 5% 373 -4% 370 -3%
South America Mining 314 305 3% 302 4% 283 11%
Indonesia Mining 398 375 6% 381 4% 380 5%
FCX consolidated payable copper production 1,070 1,021 5% 1,056 1% 1,033 4%
Payable Copper Sales (mlb) - Consolidated

North American Copper Mines 338 341 -1% 361 -6% 364 -7%
South America Mining 317 305 4% 293 8% 286 11%
Indonesia Mining 387 375 3% 406 -5% 370 5%
FCX consolidated payable copper sales 1,042 1,021 2% 1,060 -2% 1,020 2%
Copper cash costs ($/lb)

North American Copper Mines $2.49 $2.35 6% $2.56 -3% $1.90 31%
South America Mining $2.30 $2.44 -6% $2.58 -11% $2.08 11%
Indonesia Mining $0.06 $0.42 -86% $0.44 -86% $0.08 -25%
FCX consolidated copper cash costs $1.53 $1.67 -9% $1.75 -13% $1.29 19%

Multi-year Volume Guidance Largely in Line; Higher Costs and Capex
Updated 2023-2025 Cu sales guidance of 4.2 Blbs, 4.2 Blbs, and 4.2 Blbs was largely in line with our
previous estimates of 4.3 Blbs, 4.2 Blbs, and 4.0 Blbs, respectively. Similarly, updated 2023-2025 Au
sales guidance of 1.7 Mozs, 1.8 Mozs, and 1.6 Mozs, was more or less in line with our previous estimates
of 1.8 Mozs, 1.7 Mozs, and 1.5 Mozs, respectively. The company noted that its U.S.-based production is
currently constrained by a shortage of labour availability.
Maiden 2023 Cu cash cost guidance of $1.60/lb (assuming $1,900/oz Au and $20/lb Mo) was 8% higher
than our previous estimate of $1.48/lb ($1,750/oz Au and $15/lb Mo), and compares to 2022 costs of
$1.50/lb (+7% y/y increase). Moreover, after normalizing for assumed by-product credit prices, the
2023 Cu unit cost guidance was +17% higher than anticipated. 2023 consolidated site production
and delivery cost guidance of $2.29/lb represents a +5% y/y increase. See Exhibit 3 for a projected
breakdown of site unit costs.
Updated 2023-2024 capex guidance (excluding the new Indonesian smelter investment) of $3.4 billion
and $3.0 billion compared to our prior forecasts of $3.3 billion and $2.4 billion, respectively (or +12%
combined). FCX continues to evaluate potential brownfield expansion opportunities in the Americas,
including at Lonestar and Bagdad.
Exhibit 3 - FCX 2023E Site Production Costs Breakdown
Note: (5) Support costs, taxes/fees, social costs and other.
Source: Company reports.


We
present our forecasts for the company’s consolidated Cu production (by business segment)
and cash costs in Exhibit 4. While Cu production peaked in 2016 prior to major asset sales (13% of
Morenci and FCX’s entire Tenke stake), we anticipate output to have troughed in 2020 before sharply
rebounding in 2021-2022 due to the Grasberg underground ramp-up and a medium-term price-
driven recovery in the America’s assets. Looking into 2023, we now forecast consolidated Cu and Au
production to decrease by a modest 1% and 6%, following remarkable 2021 growth of 20% and 61%
and 2022 growth of +10% and +31%, respectively. We now forecast higher consolidated Cu C1 costs
of $1.69/lb in 2023, up from $1.50/lb in 2022, and $1.34/lb in 2021, reflecting inflation impacts largely
related to labour, energy, and consumables.
Exhibit 4 - FCX Consolidated Cu Production and Cash Costs
5,000 $1.80
4,500 $1.60
4,000 $1.40
Copper production (Mlb)
3,500
$1.20
Cash Cost ($/lb)

3,000
$1.00
2,500
$0.80
2,000
$0.60
1,500
1,000 $0.40
500 $0.20
- $0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
North America Copper Mines South America Mining Indonesia Mining Africa Mining Cash Costs
FCX continues to evaluate potential brownfield expansion opportunities in the Americas, including an
oxide expansion at Lonestar (before a future sulphide operation), a concentrator expansion at Bagdad,
and new leaching opportunities associated with various recent technological advancements. However,
the company noted that potential production from a new Bagdad concentrator was several years away
(a feasibility study is due in 2023; potential start-up in 2026). The target for incremental Cu production
from new leaching opportunities is a run rate of ~200M lbs pa, although the company believes there
is further upside here. FCX also continues to evaluate the potential for a future large-scale sulphide
project at El Abra in Chile, dependent on the forthcoming new fiscal regime in the country. Near-term
capex requirements for all of these potential projects appear relatively modest.
Exhibit 5 - FCX Future Growth Plans


G
rasberg Update: Outlook Largely Reaffirmed
Freeport closed the ownership restructuring transaction with the Indonesian government related to
the giant Grasberg Cu-Au mine in Indonesia in December 2018 (see our note for details). Under the
terms of the agreement, FCX's effective ownership interest in Grasberg has been reduced to 48.8%,
although its economic interest remained at a significantly higher 81.3% until the end of 2022 (and 48.8%
thereafter). PTFI, the JV that owns Grasberg, was granted a new special mining licence (IUPK) to replace
the previous Contract of Work (COW) that secures mining rights until 2031, with rights to extend mining
rights through 2041. RIO exited the asset for proceeds of $3.5 billion, while FCX sold an effective 5%
stake for $350 million to facilitate the transaction. We believe this transaction likely represented the
best possible outcome for FCX. In Q3/22, FCX and the government began discussions regarding an
extension to the mining license beyond 2041.
Grasberg is anticipated to produce a massive 1.6 billion lbs of Cu and 1.8 million ozs of Au in 2023
(largely flat y/y), which is unchanged. The updated five-year mine plan also appears essentially
unchanged with anticipated average Cu and Au output of 1.6 billion lbs and 1.6 million ozs, respectively,
although maiden 2027 output featured slightly higher copper (1.6 billion lbs vs. our 1.5 billion lbs)
but lower gold (1.3 million ozs vs. our 1.5 million ozs). Construction of the new $3.0 billion Indonesian
smelter is well underway with completion targeted for 2024. The export tax has recently been reduced
to 2.5% (from 5.0%) based on smelter construction progress. Development of the Kucing Liar orebody
commenced in 2021; this is a 10-year project with estimated capex of ~$0.4 billion pa.
Exhibit 6 - Grasberg Five Year Mine Plan


S
trong Balance Sheet; Mixed FCF Profile Exhibit 7 - Forecast Net Debt per Share
$8.00
At the end of Q4/22, FCX had a cash balance of $8.1 billion and $5.99
total debt of $10.6 billion, resulting in a minor net debt balance of $6.00
$4.78
$5.38
$4.15
$2.5 billion (or $1.72 per share). This modestly increased from the $4.00 $2.79
Q3/22 net debt balance of $2.1 billion (or $1.47 per share) due to $1.70 $2.02
$2.00 $0.93
negative FCF of $205 million (FCF generated positive $0.9 billion of $0.47
FCF in 2022). However, excluding Indonesia smelter debt, net debt $-
totaled only $1.3 billion at Q4/22 (vs. $1.3 billion at Q3/22). Debt to $(2.00)
$(1.78)
capitalization was 30% while net debt to trailing 12-month EBITDA $(4.00)
was a modest 0.3x at Q4/22.
$(6.00)
$(5.97)
In 2023, we forecast Freeport to relatively strong operating cash flow $(8.00)
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
of $4.9 billion (or $3.40 per share) based on commodity prices of
$3.65/lb Cu and $1,750/oz Au. However, with $5.2 billion in forecast
capital expenditures in 2023 (including a peak $1.8 billion in smelter
funding at Grasberg on a 100% basis), we forecast negative free cash
Exhibit 8 - Forecast Debt to Capitalization
flow of $676 million (or $-0.47 per share). We note that free cash
flow in 2023 reflects FCX’s lower Grasberg economic ownership of

60%
~49% vs. ~81% in 2022. We forecast Freeport to exit 2023 with a 54%
slightly higher net debt balance of $4.0 billion (or $2.79 per share). 50%
We forecast the company’s debt to capitalization at 26%. 39%
40% 36%
34%
In 2024, we forecast Freeport to generate markedly higher operating 29% 30%
30% 26%
cash flow of $7.2 billion (or $5.00 per share) due to a higher $4.00/lb 24% 22% 21%
Cu, but also positive working capital changes (vs. negative in 2023). 20% 16%
With a lower $3.6 billion in forecast capital expenditures (including
$0.6 billion in smelter funding at Grasberg on a 100% basis), we 10%
forecast significant free cash flow of $2.0 billion (or $1.37 per share).
0%
We forecast Freeport to exit 2024 with a lower net debt balance of 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
$2.9 billion (or $2.02 per share). We forecast the company’s debt to
capitalization at only 24% at year-end 2024. Source: Company reports; Scotiabank GBM estimates.
In 2025, we forecast Freeport to generate very strong operating Exhibit 9 - Forecast Net Debt to TTM EBITDA
cash flow of $8.0 billion (or $5.53 per share) due to a higher $4.50/
lb Cu. With a lower $2.5 billion in forecast capital expenditures, we 3.5x
2.9x
forecast significant free cash flow of $3.1 billion (or $2.15 per share). 3.0x
We forecast Freeport to exit 2025 with a lower net debt balance of 2.5x
$0.7 billion (or $0.47 per share). We forecast the company’s debt to 2.0x
1.4x
capitalization at only 22% at year-end 2025. 1.5x
1.0x
0.5x
0.3x
We detail our forecasts for net debt per share in Exhibit 7, debt to 0.5x 0.1x 0.3x
0.1x
capitalization in Exhibit 8, net debt to TTM EBITDA in Exhibit 9, and 0.0x
operating and free cash flows in Exhibit 10. -0.5x (0.2x)
-1.0x (0.6x)
2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
Net Debt to TTM EBITDA


Exhibit
10 - Forecast Operating and Free Cash Flow per Share
$9.00
$7.92
$8.00
$7.00 $6.12
$6.00 $5.21 $5.53
$5.00
$5.00 $4.49
$4.00 $3.22 $3.39 $3.54
$3.40 $2.85
$3.00 $2.65
$2.16 $2.07 $2.15
$2.00 $1.37
$1.04$1.02 $0.72
$0.57
$1.00
$0.00
($1.00) ($0.47)
($2.00) ($0.86)
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E
Operating Cash Flow per share Free Cash Flow per share
Note: FCF includes capex for Indonesian smelter build in 2021-2024.

In February 2021, the board adopted a new financial policy for the allocation of cash flows that is
designed to align the strategic objectives of maintaining a strong balance sheet, increasing cash
returns to shareholders, and advancing future growth opportunities. Under the new policy, up to 50%
of available cash flows after planned capex (excluding new Indonesian smelter capex) and minority
interest distributions (i.e., FCF excluding smelter capex) would be allocated to shareholder returns,
with the balance earmarked for debt reduction and growth. The enhanced shareholder return payout
framework began in November 2021 (see our note) with the announcement of total base and variable
dividends per share of $0.60 for 2022, combined with up to $3.0 billion in share buybacks.
In July 2022, the board approved a materially higher share repurchase program of up to $5.0 billion (vs.
$3.0 billion previously). To date, FCX has repurchased a total of 47.9 million shares at a total cost of $1.8
billion which is unchanged from last quarter, including 35.1 million shares (at a cost of $1.3 billion) during
2022. At the current share price, the remaining $3.2B buyback represents potential share repurchases
of up to ~72M shares, or 5.0% of fully diluted shares outstanding. Based on our 2023E-2025E adjusted
FCF estimates (reported FCF excluding smelter capex) of $0.2 billion, $2.3 billion, and $3.1 billion, we
estimate total potential distributions of up to $0.30 per share, $0.78 per share, and $1.08 per share,
representing current yields of 0.7%, 1.8% and 2.4%, respectively (see Exhibit 11). The returns for 2023E
are only derived from the base dividend. We note that our estimates do not distinguish “discretionary”
capex, which is also excluded from the FCF calculation available for shareholder returns; as a result, our
estimated capital returns are likely conservative.
Exhibit 11 - Forecast Available Cash Flows and Potential Special Distributions
2023E 2024E 2025E 2026E 2027E

Free cash flow to firm (676) 1,968 3,098 4,098 6,468
Smelter adjustment 878 293 - - 1
Adjusted free cash flow 203 2,260 3,098 4,098 6,469
Available cash flows (50%) 101 1,130 1,549 2,049 3,235
Less base dividends (432) (432) (432) (432) (432)
Potential special distributions (331) 698 1,117 1,617 2,803
Special distributions per share ($0.23) $0.48 $0.78 $1.12 $1.95
Potential yield -0.5% 1.1% 1.7% 2.5% 4.4%
Base dividends per share $0.30 $0.30 $0.30 2.5% 4.4%
Total potential distributions per share $0.30 $0.78 $1.08 $1.15 $1.99
Total potential yield 0.7% 1.8% 2.4% 2.5% 4.4%
Note: FCF includes capex for Indonesian smelter build in 2022-2024. Smelter adjustment adds back FCX's attributable
smelter capex spend.


R
evisions to Estimates – Major Changes This Quarter
We have made the following changes to our estimates based on the Q4/22 results and updated multi-
year guidance.
• Our 2023-2025 consolidated Cu production and sales forecasts are essentially unchanged at 4.2
billion lbs, 4.2 billion lbs, and 4.2 billion lbs, compared to 4.3 billion lbs, 4.2 billion lbs, and 4.0 billion
lbs, previously.
• Our 2023-2025 consolidated Au production and sales forecasts of 1.7 million ozs, 1.8 million ozs, and
1.6 million ozs, increased by an average of 5% per annum compared with 1.8 million ozs, 1.7 million
ozs, and 1.5 million ozs, previously.
• We now forecast markedly higher 2023-2025 copper cash costs of $1.69/lb, $1.54/lb, and $1.63/lb
vs. $1.48/lb, $1.45/lb, and $1.59/lb, previously (an average increase of 8% per annum).
• We now forecast consolidated 2023-2025 capex (including smelter build in 2023-2024) of $5.2
billion, $3.6 billion, and $2.5 billion, respectively, which compares to $5.0 billion, $3.0 billion, and $2.1
billion, previously (an average increase of 15% per annum).
Our revised 2023E-2025E EPS estimates of $1.25, $1.75, and $2.32 compare with our previous estimates
of $1.74, $2.03, and $2.41. Our revised 2023E-2025E CFPS estimates of $3.40, $5.00, and $5.53,
compare with our previous estimates of $3.94, $5.29, and $5.50, respectively. Our revised 8% NAV
estimate of $24.17 decreased by 10%, driven by higher costs and capex. Our revised 10% NAV estimate
is $20.75 per share. Our revised 2023E-2025E EBITDA estimates of $7,406 million, $9,726 million, and
$11,391 million compare with our previous forecasts of $8,816 million, $10,328 million, and $11,309
million, reflecting an average decrease of 7% per annum. Our sensitivities to copper prices are detailed
in Exhibit 12. We note that a 10% increase in our copper price deck would raise our 8% NAVPS by a
substantial 23%. We present a breakdown of our NAV estimate in Exhibit 13.
Exhibit 12 - Forecast Sensitivity to Copper Prices (2023E)

-20% -10% 0% 10% 20%
EPS - 2023E $0.21 $0.73 $1.25 $1.77 $2.30
-84% -42% 42% 84%
CFPS - 2023E $1.63 $2.52 $3.40 $4.30 $5.20

-52% -26% 26% 53%
EBITDA - 2023E 4,326 5,866 7,406 8,946 10,485

-42% -21% 21% 42%
8% NAVPS $12.16 $18.37 $24.17 $29.70 $35.11

-50% -24% 23% 45%
Note: Base case assumes $3.65/lb Cu for 2023.


Exhibit
13 - FCX NAVPS Breakdown (as at year-end 2022)
millions, except per share values USD USD USD 8%

10% 8% $ per share % OP. NAV
North American Copper Mines
Morenci $3,090 $3,615 $2.49 9%
Bagdad $1,891 $2,288 $1.58 6%
Safford (including Lone Star) $2,925 $3,371 $2.32 8%
Sierrita $2,183 $2,558 $1.76 6%
Chino $1,387 $1,540 $1.06 4%
Tyrone $27 $27 $0.02 0%
Miami Smelter and El Paso Refinery ($120) ($150) ($0.10) 0%
Total North American Copper Mines $11,383 $13,249 $9.13 32%
South America Mining (attributable)

Cerro Verde $5,748 $6,740 $4.64 16%
El Abra $247 $298 $0.21 1%
Total South America Mining $5,995 $7,038 $4.85 17%
Grasberg (attributable) $11,376 $13,156 $9.07 32%

Atlantic Copper $1,182 $1,355 $0.93 3%
North American Rod and Ball Mills $154 $183 $0.13 0%
Moly assets and Other $1,156 $1,399 $0.96 3%

In situ value of M&I copper (excl. assumed reserve conversion) $4,494 $4,494 $3.10 11%
Total Mining Assets $35,741 $40,875 $28.17 100%
Total Operating Assets $35,741 $40,875 $28.17 100%
Corporate Adjustments
Cash $8,146 $8,146 $5.61
Working Capital (ex. Cash, STD and current AROs) $2,479 $2,479 $1.71
Total Debt ($10,620) ($10,620) ($7.32)
Corporate SG&A ($2,440) ($2,883) ($1.99)
Exploration Expenses (50%) ($448) ($522) ($0.36)
Pension / Reclamation Liabilities ($5,628) ($5,628) ($3.88)
Corporate tax adjustment $2,651 $2,963 $2.04
Est. Net Asset Value $29,881 $34,810 $24.17
Share Count 1,440
Est. Net Asset Value per share $20.75 $24.17
Note: NAV assumes long-term real prices (starting 2028) of $4.00/lb Cu and $1,600/oz Au.
Conclusion, Valuation and Recommendation
Conclusion. FCX reported better-than-anticipated Q4/22 results driven by higher volumes and lower
costs. Although multi-year volume guidance was largely in line with our expectations, cost and capex
guidance was markedly higher, negatively impacting our estimates. With the development and ramp-
up of the massive Grasberg underground project largely complete, the company continues to evaluate
potential lower risk brownfield growth opportunities in the Americas (a future upside risk to estimates).
After meaningfully deleveraging over the past few years, FCX’s balance sheet remains extremely well
positioned to support strong shareholder returns and weather the current copper price volatility. On a
positive note, the company noted that customer demand for its copper products remains very healthy
despite the ongoing economic uncertainty. Overall, we view the update as mixed for the shares.
Valuation. FCX shares are currently trading at elevated 2023E-2024E EV/EBITDA multiples of 10.3x
and 8.1x, and at a 1.84x multiple to our revised 8% NAVPS estimate of $24.17. This compares with our
large-cap base metals producer universe average of 7.7x, 7.5x, and 1.16x, respectively. We profile FCX’s
historical EV/EBITDA and P/NAV(8%) multiples in Exhibit 14 and Exhibit 15. We anticipate FCX shares to
trade at premium multiples to the peer group given the scarcity of large U.S.-listed copper producers.
Recommendation. Despite high leverage to Cu and a strong balance sheet, we rate FCX Sector Perform
based on valuation. Our revised 12-month target of $41.00 per share (from $43.00) is based on a 50/50
mix of 8.0x our avg. 2023E-2024E EV/EBITDA and 1.8x our updated 8% NAVPS estimate. We note that


our
previous EV/EBITDA target multiple of 10.0x was based on attributable EV/EBITDA rather than
consolidated.
Exhibit 14 - FCX Historical EV/EBITDA
FCX EV/EBITDA History

> 12.0x
Average - 5.3x
Max - +12.0x
10.0x Min - 1.9x
1 StDev - 1.7x
8.0x
6.0x
4.0x
2.0x
-
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
FCX Average +/-1 StDev
Source: Company reports; Scotiabank GBM estimates; FactSet.
Exhibit 15 - FCX Historical P/NAV(8%)
FCX P/NAV(8%) History

3.0x Average - 1.24x
Max - 2.69x
2.5x Min - 0.38x
1 StDev - 0.43x
2.0x
1.5x
1.0x
0.5x
-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
FCX Average +/-1 StDev
Source: Company reports; Scotiabank GBM estimates; FactSet.


Exhibit
16 - Freeport-McMoRan Financial and Operating Summary
METAL PRICE FORECAST 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
Copper ($/lb) $2.96 $2.73 $2.80 $4.23 $4.00 $3.65 $4.00 $4.50 $5.00 $5.50
Gold ($/oz) $1,270 $1,392 $1,769 $1,799 $1,803 $1,750 $1,750 $1,600 $1,600 $1,600
Molybdenum ($/lb) $11.54 $11.25 $8.71 $15.90 $18.62 $15.00 $15.00 $14.00 $14.00 $13.00
PRODUCTION FORECAST (net) 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
Consolidated Copper (billion lbs) 3.8 3.2 3.2 3.8 4.2 4.2 4.2 4.2 4.0 3.9
Attributable Copper (billion lbs) 3.1 2.6 2.6 3.1 3.4 2.8 2.8 2.8 2.7 2.6
Attributable Copper (000s tonnes) 1,409 1,170 1,177 1,407 1,528 1,284 1,257 1,254 1,208 1,187
Gold (000s ounces) 2,438 881 857 1,381 1,810 1,703 1,829 1,623 1,328 1,235
Molybdenum (000s tonnes) 38 36 30 35 34 34 36 36 36 36
UNIT COST FORECAST 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
Copper Cash Cost ($ per lb) $1.07 $1.74 $1.48 $1.34 $1.50 $1.69 $1.54 $1.63 $1.74 $1.76
INCOME STATEMENT FORECAST (in
millions) 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
Net Sales 18,628 14,557 14,198 22,845 22,780 22,215 24,289 26,198 27,485 29,385
Production and Delivery Costs 11,691 11,516 10,031 12,016 13,041 14,128 13,882 14,126 14,199 14,347
Depreciation and Depletion 1,754 1,412 1,528 1,998 2,019 2,076 2,201 2,171 2,100 2,091
Selling, General, and Administrative 443 414 371 383 420 440 440 441 440 440
Exploration and R&D 105 104 50 55 115 120 120 120 120 120
Other operating expenses (119) (135) (218) 27 148 120 120 120 120 120
Operating Earnings 4,754 1,246 2,436 8,366 7,037 5,329 7,525 9,220 10,506 12,268
Interest Expense (income) 946 620 598 602 560 461 427 407 396 344
Other Expenses (Income) (84) 165 41 105 (238) - - - 0 0
Income and Mining Taxes (Recovery) 1,374 569 944 2,299 2,267 1,607 2,697 3,349 3,842 4,531
Affiliates, Minority Interest and Pref. div. 261 55 254 1,054 980 1,459 1,878 2,118 2,304 2,630
Net Earnings to common shareholders 2,257 (163) 599 4,306 3,468 1,803 2,523 3,346 3,964 4,762
Adjusted Net Earnings 2,207 32 805 4,636 3,542 1,803 2,523 3,346 3,964 4,762
Net Earnings Per Common Share (FD) $1.55 ($0.11) $0.41 $2.91 $2.39 $1.25 $1.75 $2.32 $2.75 $3.31
Adjusted Earnings Per Share (FD) $1.51 $0.02 $0.55 $3.13 $2.44 $1.25 $1.75 $2.32 $2.75 $3.31
EBITDA 6,742 2,698 4,177 10,912 9,522 7,406 9,726 11,391 12,607 14,359
CASH FLOW FORECAST (in millions) 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
Net Earnings 2,511 (189) 865 5,365 4,479 3,262 4,401 5,464 6,268 7,392
Non-cash charges 1,906 1,322 1,487 1,595 2,188 2,017 2,247 2,365 2,415 2,544
Changes in working capital (554) 349 665 755 (1,528) (377) 550 135 128 1,464
Cashflow From Operations 3,863 1,482 3,017 7,715 5,139 4,901 7,198 7,963 8,811 11,400
Cashflow Per Share (FD) $2.65 $1.02 $2.07 $5.21 $3.54 $3.40 $5.00 $5.53 $6.12 $7.92
Sustaining Capital Expenditures (969) (1,169) (850) (895) (1,529) (2,006) (2,248) (1,868) (1,548) (1,530)
Growth Capital Expenditures (1,099) (1,483) (1,112) (1,221) (1,940) (3,200) (1,350) (650) (650) (550)
Non-controlling Interests (278) (82) - (583) (840) (371) (1,632) (2,348) (2,515) (2,852)
Free Cashflow to Firm 1,517 (1,252) 1,056 5,017 830 (676) 1,968 3,098 4,098 6,468
Free Cashflow to Firm Per Share (FD) $1.04 ($0.86) $0.72 $3.39 $0.57 ($0.47) $1.37 $2.15 $2.85 $4.49
Net Financing Activities (Ex. Equity/Dividends) 1,396 (1,183) (55) (426) 83 (1,000) (700) - - (1,457)
Free Cashflow to Equity 2,913 (2,435) 1,001 4,591 913 (1,676) 1,268 3,098 4,098 5,011
Free Cashflow to Equity Per Share (FD) $2.00 ($1.67) $0.69 $3.10 $0.63 ($1.16) $0.88 $2.15 $2.85 $3.48
Equity Issues (Repurchases) 0 0 0 0 0 0 0 0 0 0
Common Stock Dividends (218) (291) (73) (331) (866) (864) (864) (864) (864) (432)
All Other Sources (Uses) of Cash (2,950) 549 697 151 29 0 - (0) - 0
Net Source (Use) of Cash (255) (2,177) 1,625 4,411 76 (2,540) 404 2,234 3,234 4,579
BALANCE SHEET FORECAST (in millions) 2018A 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
Cash and marketable securities 4,217 2,020 3,657 8,068 8,146 5,606 6,010 8,244 11,478 16,057
Accounts Receivable 829 741 892 1,168 1,336 1,193 1,214 1,310 1,374 1,763
Inventories 4,759 3,958 3,893 4,497 5,180 5,068 5,586 6,025 6,322 6,759
Other Current Assets 915 1,081 861 1,097 951 951 951 951 951 951
Total Current Assets 10,720 7,800 9,303 14,830 15,613 12,818 13,762 16,530 20,124 25,530
Property, Plant and Equipment 28,482 29,584 29,818 30,345 32,627 35,757 37,153 37,500 37,598 37,586
Other Assets 3,486 3,425 3,023 2,847 2,853 2,853 2,853 2,853 2,853 2,853
Total Assets 42,688 40,809 42,144 48,022 51,093 51,428 53,768 56,883 60,575 65,969
Accounts payable and accrued liabilities 2,625 2,576 2,708 3,495 4,027 3,876 4,129 4,454 4,672 4,995
Short term Debt 17 5 34 372 1,037 1,037 1,037 1,037 1,037 1,037
Other Current Liabilities 677 628 675 2,025 1,281 1,281 1,281 1,281 1,281 1,281
Total Current Liabilities 3,319 3,209 3,417 5,892 6,345 6,194 6,447 6,772 6,990 7,313
Long-term debt 11,124 9,821 9,677 9,078 9,583 8,583 7,883 7,883 7,883 6,426
Deferred Taxes 4,869 4,210 4,408 4,234 4,269 3,728 4,610 5,148 5,733 8,152
Other Liabilities 5,883 6,121 5,974 5,799 6,025 6,025 6,025 6,025 6,025 6,025
Shareholders' Equity 17,493 17,448 18,668 23,019 24,871 26,898 28,803 31,055 33,944 38,052
Total Liabilities & Shareholders' Equity 42,688 40,809 42,144 48,022 51,093 51,428 53,768 56,883 60,575 65,969


Company Overview Wednesday, January 25, 2023

Company Description
Freeport-McMoRan Inc. (FCX-N) is the world's largest publicly traded producer of copper and
molybdenum, and a significant gold producer. The company's assets span the globe, with material
operations in the United States, Peru, Chile, and Indonesia.
Key Risks
Commodity prices; operational; balance sheet; political



Appendix A: Important Disclosures

I, Orest Wowkodaw, certify that (1) the views expressed in this report in connection with securities or issuers that I analyze accurately reflect
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Rating and Price Target History
Freeport-McMoRan Inc. (FCX-N) as of January 24, 2023 (in USD)

01-23-2020 04-09-2020 04-16-2020 04-27-2020 07-09-2020 07-23-2020 10-13-2020 10-22-2020 11-12-2020 01-11-2021
Price: 11.97 Price: 8.19 Price: 7.58 Price: 8.85 Price: 12.89 Price: 13.32 Price: 16.82 Price: 18.35 Price: 19.52 Price: 30.32
Rating: SP Rating: SP Rating: SP Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO
Target: 13.00 Target: 10.00 Target: 12.00 Target: 12.50 Target: 13.50 Target: 14.00 Target: 19.00 Target: 20.00 Target: 22.00 Target: 35.00
60
50
40
Price (USD)
30
20
10
0
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23
04-12-2021 07-12-2021 07-22-2021 10-12-2021 11-01-2021 01-17-2022 01-26-2022 02-02-2022 04-13-2022 04-19-2022
Price: 33.67 Price: 36.53 Price: 34.80 Price: 34.61 Price: 38.33 Price: 44.08 Price: 38.43 Price: 39.39 Price: 49.43 Price: 50.64
Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO
Target: 42.00 Target: 45.00 Target: 44.00 Target: 42.00 Target: 44.00 Target: 50.00 Target: 48.00 Target: 47.00 Target: 56.00 Target: 57.00
04-21-2022 07-07-2022 07-25-2022 10-13-2022 11-11-2022 01-16-2023
Price: 44.95 Price: 29.22 Price: 28.29 Price: 29.36 Price: 38.04 Price: 45.05
Rating: SO Rating: SO Rating: SO Rating: SO Rating: SP Rating: SP
Target: 55.00 Target: 40.00 Target: 36.00 Target: 34.00 Target: 34.00 Target: 43.00
*Represents the value(s) that changed.

Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage
Source: Scotiabank GBM estimates; FactSet.


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stocks covered by the analyst.
and/or operational risk, exceptionally low predictability of financial
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The stock is expected to underperform the average 12-month total
determination of the Speculative risk ranking.
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Ratings Distribution
As of December 31, 2022
Companies Rated Investment Banking Service Provided
in Each Category in the Last 12 Months
Rating Count Percentage Count Percentage
Sector Outperform 258 49% 68 26%
Sector Perform 244 47% 54 22%
Sector Underperform 20 4% 0 0%
For the purposes of the ratings distribution disclosure FINRA requires members who use a ratings system with terms different than
“buy,” “hold/neutral” and “sell,” to equate their own ratings into these categories. Our Sector Outperform, Sector Perform, and Sector
Underperform ratings are based on the criteria above, but for this purpose could be equated to buy, neutral and sell ratings, respectively.


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Freeport-Mcmoran Inc.: Higher Cost and Capex Guidance Dampens Outlook

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Metals & Mining

(FY-Dec.) 2022A 2023E 2024E 2025E

20 35 Source: FactSet; company reports; Scotiabank GBM estimates.

Exhibit 1 - FCX Q4/22 Variances

Unit cash costs

Income Statement ($ millions)

SG&A -107 -100 7% -98 9% -94 14%

Income taxes -557 -523 6% -315 -77% -625 11%

Earnings from affiliates -2 0 0% 8 -125% 10 -120%

Adjustments 51 0 0% -29 276% 315 -84%

Reported EPS - Basic $0.48 $0.47 4% $0.28 72% $0.75 -35%

Source: Company reports; Scotiabank GBM estimates.

Solid Operational Results

Exhibit 2 - FCX Production, Sales, and Cash Costs by Segment

Payable Copper Sales (mlb) - Consolidated

Copper cash costs ($/lb)

Source: Company reports; Scotiabank GBM estimates.

Multi-year Volume Guidance Largely in Line; Higher Costs and Capex

Exhibit 3 - FCX 2023E Site Production Costs Breakdown

Note: (5) Support costs, taxes/fees, social costs and other.

Source: Company reports.

Exhibit 4 - FCX Consolidated Cu Production and Cash Costs

Cash Cost ($/lb)

Source: Company reports; Scotiabank GBM estimates.

Exhibit 5 - FCX Future Growth Plans

Source: Company reports.

Exhibit 6 - Grasberg Five Year Mine Plan

Source: Company reports.

flow in 2023 reflects FCX’s lower Grasberg economic ownership of

Net Debt to TTM EBITDA

Source: Company reports; Scotiabank GBM estimates.

Note: FCF includes capex for Indonesian smelter build in 2021-2024.

Source: Company reports; Scotiabank GBM estimates.

Exhibit 11 - Forecast Available Cash Flows and Potential Special Distributions

2023E 2024E 2025E 2026E 2027E

Source: Company reports; Scotiabank GBM estimates.

billion, previously (an average increase of 15% per annum).

Exhibit 12 - Forecast Sensitivity to Copper Prices (2023E)

CFPS - 2023E $1.63 $2.52 $3.40 $4.30 $5.20

EBITDA - 2023E 4,326 5,866 7,406 8,946 10,485

8% NAVPS $12.16 $18.37 $24.17 $29.70 $35.11

Source: Company reports; Scotiabank GBM estimates.

millions, except per share values USD USD USD 8%

South America Mining (attributable)

Grasberg (attributable) $11,376 $13,156 $9.07 32%

Moly assets and Other $1,156 $1,399 $0.96 3%

Total Operating Assets $35,741 $40,875 $28.17 100%

Share Count 1,440

Est. Net Asset Value per share $20.75 $24.17

Source: Company reports; Scotiabank GBM estimates.

Conclusion, Valuation and Recommendation

Exhibit 14 - FCX Historical EV/EBITDA

FCX EV/EBITDA History

Source: Company reports; Scotiabank GBM estimates; FactSet.

Exhibit 15 - FCX Historical P/NAV(8%)

FCX P/NAV(8%) History

FCX Average +/-1 StDev

Source: Company reports; Scotiabank GBM estimates; FactSet.

Source: Company reports; Scotiabank GBM estimates.

Commodity prices; operational; balance sheet; political

Appendix A: Important Disclosures

senior management (not including investment or corporate banking).

Rating and Price Target History