Shares of copper miner Freeport-McMoRan (FCX 5.25%) quickly gained 10% as the stock market opened on Friday. However, almost as quickly, that gain started to wane, with the stock up roughly 6% by 10 a.m. EDT, just a half hour later.
By 10:30 a.m. it was higher again, up about 8%. The initial bounce higher was likely related, to some degree, to copper prices, which were higher when the U.S. market opened for the day. By 10:30 a.m. or so, however, that gain was washed away while investors were still positive on Freeport.
As is so often the case of late, the more upbeat view on this stock was tied to an update on COVID-19.
Freeport-McMoRan reported first-quarter 2020 financial results in the morning, which weren't exactly great reading. The company lost $0.34 per share, compared to a profit of $0.02 per share in the year-ago quarter. The big culprit was a decline in copper prices, which isn't shocking given that the price of this industrial metal tends to track along with economic activity. At this point, the social distancing efforts used to slow the spread of COVID-19 are expected to plunge the world into a global recession.
The earnings update, however, didn't focus on earnings so much as what Freeport-McMoRan was doing to deal with the impact COVID-19 was having on its business. To that end, the company announced it was looking to slash operating costs by 18%, cut capital expenditures by 30%, and reduce exploration costs by 20%. And while it materially walked back its full-year guidance, management believes its revised plan will allow it to muddle through this difficult period with a minimal cash burn.
In addition, Freeport-McMoRan reported that it issued $1.3 billion in debt. The bonds, with maturities of eight years or more, were used to pay off debt maturing in 2021 and 2022. This helped remove some balance sheet concerns that investors were likely watching. In addition, management reported that it had $5.1 billion in liquidity (comprised of cash and unused amounts on a credit facility). All in, it appears to be in decent fiscal shape to deal with the current headwinds.
Although Freeport-McMoRan's first-quarter earnings left much to be desired, the company is clearly working quickly to adjust to a new and more difficult economic environment. This isn't what it expected as 2020 got under way, but few foresaw the widespread impact COVID-19, and the efforts to contain the virus, would have on the global economy. That said, the coronavirus story is far from over, so investors will need to remain vigilant if they own Freeport-McMoRan. The company needs to execute on its revised plans while at the same time remaining flexible enough to change along with the world as it deals with COVID-19.