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Do Strong Freeport Earnings Suggest Growth In Basic Materials?

Chris Lau, Kapitall: Will basic materials stocks follow solid Freeport earnings, and bring big returns in 2014?

Interest in basic materials stocks wavered some this month as the sector's biggest rally of the year ended with the third quarter – and high prices seem poised to descend across the board in 2013.

Read more from Kapitall: Rebound in Basic Materials: 4 Undervalued Commodities Stocks to Consider

However, as earnings come in, interest appears to be back on the rise. Freeport-McMoRan (FCX) is one mining company that reported strong quarterly earnings and raised its outlook. We decided to take a closer look at Freeport to see if there might be other opportunities in the sector. 

Solid quarter

Freeport earnings included $0.79 per share on net income of $821 million. The company sold 1.04 billion pounds of copper in the third quarter, up from 922 million pounds. Freeport shares soared after results were announced: 

Click on the interactive chart to see quarterly sales over time. 

Sales likely missed the 1.06 billion target because output in South America was lower than expected. However earnings were bolstered on the back of rising gold sales up to 305K oz from 202K oz. Production from South America was lower than previously thought, but this was balanced by higher ore grades in Indonesia. 

Average realized prices for copper dropped to $3.28 per pound, compared to $3.64 per pound last year. Oil and gas production also contributed to solid results. Average realized price for oil was $104.33 per barrel.

Where the money goes

Freeport raised its operating cash flow guidance – a measure of of a company's income that's less susceptible to accounting tricks than profit or revenue – just slightly for the fiscal year. The firm expects operating cash flow will be nearly $6 billion.

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