Source: Anadarko Petroleum. 

When Freeport-McMoRan (NYSE:FCX) missed earnings estimates by $0.03 a share, I thought investors would sell off the stock. Surprisingly, that didn't happen, as investors wisely saw through the miss for what it was. Which, in this case was simply an effect of the continued delays in copper exports from Indonesia.

Digging into Freeport-McMoRan's second-quarter results
Because of that, the big story this quarter continues to be delays in exporting copper from the Grasberg mine in Indonesia. Freeport-McMoRan had expected to resume exports in May, which would have resulted in the company selling 1.1 billion pounds of copper in the quarter. However, because an agreement with the government has yet to be reached, Freeport-McMoRan continues to face restrictions in copper concentrate exports from the country. This caused the company to only sell 968 million pounds of copper in the quarter.

As the following slide notes, the export restriction caused Freeport-McMoRan to defer 275 million pounds of copper sales so far this year.

Source: Freeport-McMoRan Investor Presentation (link opens a PDF).

Also noted on that slide is that the company currently expects to resume exports this August; however, it does have contingency plans should exports continue to be restricted. Needless to say, this is an important story for investors to keep an eye on, as its holding back the company's earnings potential. 

Overall, the export restriction resulted in 150 million pounds of copper and 240,000 ounces of gold sales being deferred in the quarter. However, the delay cost Freeport-McMoRan more than just these sales. The delay also affected the company's average unit net cash costs for copper mines in the quarter. Instead of an average cost of $1.58 per pound that it estimated, Freeport-McMoRan's average copper cost was $1.72 per pound in the quarter as its copper sales were from higher-cost mines, which increased its average cost per pound.

The combination of lower copper sales volumes and higher costs had an impact on the company's earnings in the quarter. That being said, the fact that these sales were merely delayed until Freeport-McMoRan can resume exports suggests that the miss this quarter could be made up in the future. Needless to say, investors that held on are doing the right thing, here, because the earnings miss was to be expected if exports didn't resume on time.

Solid results all around
Outside of its export issues in Indonesia and weak copper prices, Freeport-McMoRan had a pretty solid quarter. In fact, sales volumes of Freeport-McMoRan's other commodities were pretty strong this past quarter. Sales of molybdenum, for example, reached 25 million pounds in the quarter. Not only was this higher than last year's second quarter by two million pounds, but Freeport-McMoRan exceeded its own estimates by one million pounds this quarter.

In addition to that oil and gas sales also exceeded estimates. Going into the quarter, Freeport-McMoRan estimated that it would sell 15.2 million barrels of oil equivalent, or BOE in the quarter. However, the company sold a total of 16 million BOE in the quarter, which was a surprising beat given that the company sold its Eagle Ford Shale assets in the quarter. Those assets were actually what fueled last quarter's surprisingly strong results.

This past quarter, the company's Gulf of Mexico assets were what really fueled results. The company produced 75,000 BOE per day from the Gulf, which was well above last year's first-quarter production of 64,000 BOE per day.

Looking ahead, Freeport-McMoRan's production from the Gulf of Mexico should continue growing. The company and its partners, such as Anadarko Petroleum (NYSE: APC), are expected to deliver first oil from the Lucius oil project later this year. Lucius, where Anadarko Petroleum is the operator, is expected to produce 80,000 barrels of oil along with 450 Mcf of natural gas each day. Freeport-McMoRan's cut of that production is now up to 25.1% after it picked up Apache's (NYSE: APA) working interest in the project this quarter. Because of that project, Freeport-McMoRan's Gulf of Mexico business should help to fuel its results later this year.

Source: Anadarko Petroleum.

Investor takeaway
Despite the fact that Freeport-McMoRan hasn't resumed copper concentrate exports from Indonesia, the company did have a fairly strong quarter. The resumption of those exports, which Freeport-McMoRan sees happing soon, when combined with the growth from its Gulf of Mexico operations, should provide a boost to the company going forward. That's why it was smart for Freeport-McMoRan investors to shrug off the company's earnings miss.