Freeport-McMoRan (NYSE:FCX) has just reported its first-quarter results, missing analyst estimates on both GAAP earnings and revenue, but beating them on an adjusted EPS basis. The company reported revenues of $2.8 billion and GAAP loss of $491 million. Operating cash flow was -$38 million, so the inevitable capital spending led to a decrease of cash position from $2 billion at the end of 2019 to $1.6 billion at the end of the first quarter of 2020. In addition to cash on the balance sheet, Freeport-McMoRan maintains access to $3.5 billion under the credit facility so the company has no liquidity problems.

I’d argue that actual first-quarter results were not that interesting for traders and investors amid current coronavirus uncertainty as everyone tries to evaluate what the future would look like. So, let’s get to the most interesting part of Freeport’s report – the revised plans.

Source: Freeport-McMoRan Q1 2020 report

Freeport-McMoRan will decrease copper production from 3.5 billion pounds to 3.1 billion pounds while molybdenum production will fall from 88 million pounds to 80 million pounds. At the same time, gold production will stay roughly flat, which is good news since gold continues to go up. The Indonesian mine Grasberg is responsible for gold production and it is located in a remote area which is a huge positive factor in the current environment since it significantly decreases the risks of coronavirus-related disruptions.

Given the unprecedented shock to the world economy, Freeport-McMoRan decided to cut its capital spending by $800 million from $2.8 billion to $2.0 billion. The company’s projected operating cash flows decreased from $2.4 billion to $1.8 billion so at the first glance Freeport is set to end the year with more cash than previously expected since the decrease in capital spending is bigger than the decrease in projected operating cash flow. However, it’s hard to evaluate the exact hit to cash flow since we are still in the midst of the crisis, so I will take operating cash flow projections with a grain of salt.

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Importantly, Freeport decided to finish the Lone Star project in Arizona since it required only $100 million of incremental investment and was 90% complete. The project is expected to be completed in the second half of 2020.

Another positive news for Freeport-McMoRan is the projected decrease in costs which benefit from lower energy prices and favorable foreign exchange movements. In my opinion, these positive factors will stay intact for some time since I do not expect a quick resolution to the current crisis and I believe that the recovery will be challenging (if we are talking about the whole world rather than specific countries).

The company’s liquidity position looks strong, especially in the light of the recent dividend suspension. Compared to the prior crisis for the copper industry which happened in 2015-2016, when copper prices traded close to $2.00 per pound, Freeport-McMoRan is much better prepared. Also, the main copper consumer, China, is already recovering from the acute phase of the coronavirus crisis, although the speed of this recovery will depend on the situation in the global economy which will be bad in 2020.

My main worry is the speed of the recent market rally which was based on monetary stimulus and expectations of the quick end to lockdown measures. However, it is already clear that economies will have to reopen in a gradual, careful fashion, and nobody can guarantee that the virus will not return during the next flu season which starts in autumn. Meanwhile, the market will have to deal with continuous bad economic data especially in the service – rich Western economies whose structure makes them more vulnerable to the shock from “stay-at-home” orders.

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In this light, it’s hard for me to be bullish right now despite the fact that I think that Freeport is well-positioned for the recovery when it happens. I’d prefer to see a meaningful pullback before initiating a position, and (despite all the market optimism) I would not completely rule out a re-test of lows for the market and Freeport shares in summer or autumn.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may trade any of the above-mentioned stocks.