Records Carry the Beat, but an All-Time-High Stock Into a Lost Year Is Where We Step Aside

Results vs. Consensus

For the second straight quarter, the reported numbers and the underlying business point in opposite directions, and this time the divergence is wider. Indonesia was essentially offline for the full quarter, so consolidated copper production collapsed 39% year-over-year, yet revenue was nearly flat and adjusted EPS beat, because copper and gold prices did all the work. Understanding that the beat is a price event, not an operating one, is the entire point of reading this quarter correctly.

Year-over-year (Q4)

Full year 2025

Quality of Beat/Miss

• Revenue: Entirely price. Both copper and gold volumes fell sharply; realizations rose enough to nearly offset. High-quality prices, low-quality volumes.
• Margins: The $2.22/lb unit cost jumped from $1.40 in Q3 because the Indonesian gold-credit engine that makes copper nearly free was almost entirely absent, and idle-facility costs weighed. Operating income fell 35%. The margin compression is the true operating picture beneath the EPS beat.
• EPS: Adjusted $0.47 excludes $282M ($0.19/share) of net charges (idle-facility and recovery costs, fixed-asset impairments, and legacy oil-and-gas abandonment). GAAP was $0.28. The adjustment stack is legitimate but large, and the gap flatters the headline.

Segment Performance

The divisional split tells the real 2025 story: the Americas carried the company while Indonesia went dark, and copper's price surge turned the U.S. and South America into cash machines even as their volumes were unremarkable.

United States: the engine while Grasberg heals

U.S. copper production rose 5% year-over-year to 337M lbs, and with a $5.26/lb realization, the division's operating income ran roughly 3.5x the year-ago quarter, a vivid demonstration of price leverage on a fixed cost base. Management is guiding a further 8% U.S. volume increase in 2026 and frames a potential 50%+ increase in U.S. production over four to five years from leach scaling and the Bagdad expansion.

"With strength in copper prices during the quarter, the performance of our U.S. business was quite strong, with operating income 3.5x the level of the 2024 fourth quarter." — Kathleen Quirk, President and CEO

Assessment: The U.S. is doing exactly what the initiation thesis hoped, growing volume at improving cost while capturing high prices, and it is the reason the company is fine through the lost year. But note the circularity in the bull case: the division's earnings power is itself a function of the same high copper price that makes the stock risky here. Strip the price back to mid-cycle and the U.S. contribution shrinks with it.

South America and Indonesia

South America produced 254M lbs at a $5.51/lb realization, steady operationally with unit costs of $2.57/lb (guided to a similar $2.58 in 2026 on labor, energy, and a weaker dollar). Indonesia produced just 49M lbs, versus 429M a year earlier, operating on a limited basis from the unaffected Deep MLZ and Big Gossan mines while the Grasberg Block Cave prepares to restart. One of the two smelters resumed late in the year; the new smelter remains in standby, with restart expected later in 2026.

Assessment: Indonesia's near-total absence is the whole reason 2026 is a lost year, and its return is the whole reason 2027-2029 recovers. South America is dependable ballast at a higher cost base. Neither changes the central tension: the earnings are trough-level on volume and peak-level on price, an unusually fragile combination to underwrite at an all-time-high share price.

Key KPIs

Key Topics & Management Commentary

Overall Management Tone: Confident and forward-leaning, a notable rebound from October's somber crisis posture, anchored on two messages: the Grasberg restart is on schedule and de-risking, and copper's secular demand case (reinforced by a freshly cited S&P Global study projecting a doubling of copper demand by 2040) is stronger than ever. The confidence is earned on execution and warranted on the long-term thesis; where it invites caution is that management, like the market, is leaning into a metal-price environment it does not control, and the entire 2026 cash-flow framing is price-contingent.

The Grasberg Restart Is On Track

The most important operational message was continuity: the restart plan laid out in October and November is being executed on schedule. Mud removal for PB2/PB3 is ~97% complete, the first isolating cement plug has been poured, and infrastructure repairs are expected to finish by quarter-end, positioning a Q2 2026 start-up (management now guides the first half of the second quarter). By the second half of 2026, 85% of district production is expected to be restored.

"We're 97% of what we need to be to start up production blocks two and three... We would expect it would be in the first half of the second quarter at this point, and we're on track to do that." — Kathleen Quirk, President and CEO

Assessment: This is a real positive and the single biggest reason we are not more bearish. The execution risk that dominated our October note is visibly easing, and the reserve-light nature of the damaged block (PB1C) means the recovery does not hinge on the hardest repair. It de-risks the 2027-2029 story. It does not, however, change the fact that 2026 is a lost year, nor that the stock is already pricing the recovery.

The Copper Price Is Doing Everything

LME copper traded a wide $3.87 to $5.68 range in 2025, averaging $4.51, and management noted early-2026 prices roughly 30% above that average. Q4 realizations of $5.33/lb and the "recent price" scenario of $5.75/lb underpin the entire cash-flow bridge: 2026 operating cash flow of ~$8B at $5 copper swells to ~$11B at recent spot, and the 2027-2028 model spans ~$11B EBITDA at $4 copper to over $19B at $6.

"Year to date in 2026, prices have risen significantly... with current LME prices approximately 30% higher than the 2025 average." — Kathleen Quirk, President and CEO

Assessment: Herein lies the risk. With each $0.10/lb of copper worth ~$400M of annual EBITDA and each $100/oz of gold ~$120M, FCX is a leveraged call option on two metals sitting at record levels. That leverage is glorious on the way up and brutal on the way down, and at an all-time-high share price it is asymmetric against the buyer. We are not forecasting a copper crash; we are declining to pay peak price for peak prices.

The Leach Initiative and U.S. Growth

Management leaned hard into the Americas growth story as the offset to Grasberg. Leach produced ~200M lbs in 2025, targeted to 300M in 2026 (a 40% step), 400M in 2027, and 800M by 2030, with a new "perfect pile" chemical-heat trial started at Chino in New Mexico and additive deployment scaling at Morenci. The Bagdad doubling advances toward a mid-2026 investment decision (it clears at ~$4 copper, well below spot).

"2026 we're looking at as a pivotal year for us in this initiative, as we work to scale to 400 million pounds in 2027 and to 800 million pounds by 2030." — Kathleen Quirk, President and CEO

Assessment: This is the most durable, least price-dependent part of the story: incremental U.S. pounds at sub-$1/lb from already-mined material, insulated from Indonesian risk. It is the reason the long-term franchise is attractive and the reason we would happily own FCX at a better price. It does not, however, fill the 2026 hole or justify the current multiple.

Reserves and the 2041 Extension

Year-end reserves rose well in excess of production, led by the addition of over 17B lbs of copper at El Abra (reclassified from resource). Indonesian reserves remain reported through 2041, with an extension "in progress" that would move a large reported resource into reserves. Management continued to signal government support for the extension.

Assessment: The El Abra reserve addition is a genuine long-term value marker, and the 2041 extension remains the biggest single unpriced option in the story. Both are multi-year, and neither is a near-term catalyst that offsets the valuation risk today.

Balance Sheet and Capital Returns

Net debt rose to $2.3B (from $1.7B in Q3) as operating cash flow fell and capex continued, though the balance sheet remains investment-grade with no significant 2026 maturities. 2026 capex is guided to ~$4.3-4.5B. Shareholder returns follow the 50%-of-excess-cash framework; cumulative distributions since 2021 reached $5.7B.

Assessment: The balance sheet is not the concern, and it gives management ample runway to execute the restart and fund the U.S. pipeline. But with a lost year of cash flow, rising net debt, and a heavy capex program, investors should not expect the record metal prices to translate into a surge of buybacks that would support the stock at these levels.

Analyst Q&A Highlights

The U.S. cost path to $2.50/lb by 2027

An analyst pressed on how the U.S. reaches a $2.50/lb unit cost by 2027 when 2025 ran around $3.10 and 2026 is guided near $3.00. Management framed it as a volume story: bringing on low-incremental-cost leach pounds and driving efficiencies at roughly today's operating rates, which lowers the average.

Q: "Costs last year were around $3.10, you're guiding to around $3 this year, even with a nice increase in U.S. production. How are you getting another 50 cents out by 2027?"
— Alex Hacking, Citi

A: "It's really a target. And it assumes that we're successful with scaling our leach opportunity as well as continuing to drive efficiencies... it's really coming from adding volumes at a low incremental cost... we have an opportunity to increase our volumes basically with the same operating rates that we have today."
— Kathleen Quirk, President and CEO

Assessment: An honest answer that the $2.50 is a target contingent on leach success, not a committed number. It reinforces that the U.S. cost improvement is real but back-end-loaded and execution-dependent, not something to underwrite in 2026 numbers.

Whether the restart timing can slip within Q2

An analyst asked for granularity on the Q2 restart and what could move it earlier or later. Management pointed to ~97% completion of required mud removal, a just-completed cement pour, and remaining work that is mostly infrastructure, guiding to the first half of Q2 with only minor expected variability.

Q: "You called PB2 and 3 on schedule for 2Q 2026. Any further granularity on timing, where it could land in the quarter? What would make it come in faster versus extended?"
— Bill Peterson, JPMorgan

A: "The mud removal within the mine workings has gone well, and we're 97% of what we need to be to start up... we would expect it would be in the first half of the second quarter at this point... Any variation, I think, will be relatively minor." (Johnson: "I don't see any real hurdles at this point to be able to start up as we've planned.")
— Kathleen Quirk, President and CEO; Mark Johnson, COO Indonesia

Assessment: The most reassuring exchange on the call. A quantified 97% completion and a "no real hurdles" from the operations lead materially de-risk the single most important near-term milestone. This is why the rating is Underperform on valuation, not on operational fear.

Flexibility if PB1C cannot be restarted

An analyst probed the contingency if the most-damaged block, PB1C, cannot be brought back, and whether PB1 South could be pulled forward. Management said its focus is the 85% restoration in 2026 and held PB1 South at mid-2027, while noting alternatives (PB1 North, incremental Deep MLZ, extended PB2/PB3) exist if needed.

Q: "For PB1C, if you conclude that you can't restart production from that block, do you have the flexibility to open up other areas and bring those into production also by late 2027?"
— Liam Fitzpatrick, Deutsche Bank

A: "Some of the other opportunities there would be to change our sequence and go to PB1 North. We also have some options to incrementally add production from Deep MLZ... the potential would be to continue to develop and ramp up PB2, PB3 beyond what we have in our plans. But all of those are forward-looking."
— Mark Johnson, COO Indonesia

Assessment: The optionality is real and reduces the tail risk that the damaged block permanently impairs the district's output. It confirms the recovery does not depend on the single hardest repair, which supports the long-term case even as we stay cautious near-term.

The Bagdad doubling and capital discipline

A multi-part question sought timing and capex detail on the Bagdad 2X expansion. Management targets a mid-2026 investment decision after firming vendor pricing, noted the $3.5B (2023-basis) estimate is under review for inflation and tariffs, and stressed the project clears at ~$4 copper, far below spot.

Q: "Can you give us a sense of more precise timing this year for the [Bagdad] update?... Is [5% per year] a reasonable way to think about the level of CapEx inflation?... Given that it works at $4, what other factors will you consider when thinking about approving this project?"
— Lawson Winder, BofA Securities

A: "We're looking to make a decision on the project when we have this information, at midyear... We know there is cost inflation... The major factors [are] confidence in our ability to execute the capital plan, confidence in our ability to operate efficiently... to bring on those volumes at a lower incremental cost than our current cost."
— Kathleen Quirk, President and CEO

Assessment: The discipline is commendable, holding a project that clears at $4 copper to a rigorous, vendor-priced decision at $5.75 spot rather than rushing it. It also quietly underscores our thesis: management itself underwrites growth at ~$4 copper, implicitly acknowledging that today's prices are not a level to bank on.

Copper substitution and recycling at record prices

An analyst asked, given the sharp copper move, about the recycling opportunity and the risk of substitution (aluminum for copper, etc.). Management pointed to the Atlantic Copper circular (e-scrap) project completing mid-2026, called recycling non-core, and acknowledged substitution and thrifting occur as prices rise but argued copper's conductivity keeps it essential, especially for data centers.

Q: "In light of the sharp move in copper lately... any thoughts on substitution, copper for silver in solar, but also aluminum for copper in other applications?"
— Timna Tanners, Wells Fargo

A: "There will be substitution and thrifting as prices rise. But when you look at the big picture, you still need a lot more copper to support the secular demand trends." (Adkerson: "That's inevitable, but it will be in the context of a higher copper price.")
— Kathleen Quirk, President and CEO; Richard Adkerson, Chairman

Assessment: The candor that substitution and thrifting rise with price is important and often glossed over in copper bull cases. It is a reminder that record prices carry their own demand-side gravity, one more reason to be wary of underwriting them as permanent.

Kucing Liar rate increase and smelter accounting

An analyst asked about the higher Kucing Liar production rate and the Indonesian treatment-charge line now that concentrate exports have ceased. Management explained the Kucing Liar rate rose from ~90k to ~130k tonnes/day as a plan optimization that defers pyrite-processing capital, and that export duties are gone with in-country smelting, replaced by internal treatment charges offset by captured by-product revenue.

Q: "On KL, obviously it's getting bigger. Is that all additive post-2030... And I see capital has gone up. Is that just inflation, or is KL a little more complicated?"
— Brian MacArthur, Raymond James

A: "We developed a plan that allowed us to defer a significant amount of pyrite processing... And so you see KL rates going from where we were projecting 90,000 tons a day to 130... All of this is just timing because with an extension, we'll get those reserves over time."
— Kathleen Quirk, President and CEO

Assessment: A constructive, if technical, disclosure: the Kucing Liar optimization is a genuine NPV improvement (deferring capital while lifting near-term rate), and it further ties the Indonesian long-term value to securing the 2041 extension. Long-term positive, no near-term valuation relief.

What They're NOT Saying

1. Any acknowledgment that copper prices might be elevated. The entire 2026-2028 cash-flow framing leans on $5-plus copper and $4,000-plus gold, presented as the base case; there was no scenario built around a reversion to the $4.51 average copper itself traded at as recently as 2025. Management underwrites Bagdad at $4 but models the enterprise at spot, an asymmetry worth noticing.
2. A specific 2026 free-cash-flow or shareholder-return figure. With a lost production year, rising net debt, and $4.3-4.5B of capex, management was notably quiet on how much cash actually returns to shareholders in 2026, deflecting to the formulaic 50% framework rather than a dollar amount.
3. The insurance recovery, again. The up-to-$700M coverage remains excluded from guidance with no update on quantum or timing, a full quarter after the incident.
4. The 2041 extension's fiscal terms. "In progress" and "government support" recurred, but there is still no framework for the royalty, tax, or ownership terms Indonesia may extract, on the single largest value lever in the story.

Market Reaction

• Pre-print setup: FCX closed at $60.58 on January 21, an all-time high, up 19.3% year-to-date, up 16.7% over the trailing 30 days, and up 55.0% over the trailing twelve months, having rallied roughly 48% off its ~$41 October low on the copper and gold surge. It entered the print at the very top of its $29.15-$60.58 52-week range.
• Reaction day (January 22): Shares opened roughly flat ($60.78), traded as low as $58.24, and closed at $58.85, down 2.9% ($1.73) on elevated volume (25.6M vs. 17.5M 30-day average, 1.5x). The S&P 500 rose 0.5%, so FCX underperformed the tape by more than three points.

The sell-the-news fade on above-average volume, on a beat, at an all-time high, is the tape confirming what the fundamentals imply: the good news, record metal prices and an on-track restart, is in the price. When a stock up 55% in a year cannot hold a gain on a beat and instead sheds 3%, positioning is stretched and the marginal buyer is exhausted. This is the mirror image of a capitulation bottom, and it is a classic place to reduce, not add.

Street Perspective

Debate: Pay up for the copper breakout, or fade the all-time high?

Bull view: The bull case on the Street is that copper has entered a structural bull market (an S&P Global study projecting demand to double by 2040 on AI and electrification), that at $5.75 spot FCX generates ~$11B of 2026 cash flow and is not expensive on 2027-2028 numbers, and that the restart de-risking plus a 2041 extension are catalysts still to come.

Bear view: The bear camp contends that buying an all-time-high, +55% cyclical at record metal prices into a flat production year is a textbook late-cycle trap, that the entire valuation rests on prices staying at records, and that FCX's operating leverage makes the downside violent if copper or gold reverts even to their own 2025 averages.

Our take: We side with the bears on the 12-month risk/reward. The secular case is real and we respect it, but it is now the consensus and the price. At a record share price on record metal prices, the probability-weighted return skews down, and we would rather re-engage after a reset.

Debate: Is the restart de-risking enough to look through 2026?

Bull view: The optimistic read is that a 97%-complete mud cleanup and an on-track Q2 restart mean 2026 is a known, bounded trough that the market should look straight through to the 2027-2029 recovery, exactly as it has been doing.

Bear view: The skeptical read is that "looking through" a lost year is only rational at a reasonable entry price, and the market has not just looked through 2026, it has re-rated the stock 48% higher while 2026 got worse, leaving no margin of safety if either the restart or the metal price disappoints.

Our take: The restart de-risking is genuine and we credit it, which is why we are Underperform on valuation rather than on operational risk. But de-risking a known trough does not justify a record multiple on record prices. The two positives are already paid for.

Debate: How much of the earnings power is real versus price?

Bull view: The bull view is that copper's supply deficit is structural and prices in the $5-6 range may be the new normal, in which case FCX's leverage makes it one of the best ways to own the theme, with U.S. growth and the 2041 option on top.

Bear view: The bear view is that a business earning trough volumes at peak prices has its lowest-quality earnings mix in years, and that FY2025 adjusted EBITDA merely matching 2024 despite record prices shows how much the volume loss offsets the price gain.

Our take: The tell is exactly that FY2025 EBITDA (~$10B) only matched 2024 despite far higher prices. Price is masking a weak operating year. We do not want to pay a peak price for peak prices masking a trough.

Model Update Needed

Valuation impact: On spot metal prices FCX is not egregiously expensive on 2027-2028 numbers, which is exactly the trap: the valuation is reasonable only if $5.75 copper and $4,700 gold persist. Normalize copper toward its own 2025 average of $4.51 and 2027-2028 EBITDA compresses toward the ~$11-13B end of management's own range, against which an all-time-high, ~$60 share price looks full. We see fair value meaningfully below the current level on mid-cycle prices, and only "fair" on spot. That asymmetry defines the downgrade. No formal target; Underperform.

Thesis Scorecard Post-Earnings

We grade the standing thesis. The operational axis improved (restart on track); the valuation axis deteriorated sharply (all-time high on record prices).

Overall: The thesis has bifurcated. The long-term/operational case strengthened (restart de-risked, reserves grew, secular demand affirmed); the near-term risk/reward collapsed as the stock re-rated ~48% to a record on record metal prices into a lost year. Valuation and cycle position now dominate the 12-month view.

Action: Downgrade to Underperform from Hold. Trim/avoid at the all-time high. This is a valuation and cycle-position call, explicitly not a call against the assets or the copper thesis. Upgrade-to-Hold triggers: a meaningful pullback (roughly to the mid-$40s or a double-digit de-rating) that restores margin of safety. Upgrade-to-Outperform triggers: that de-rating plus a clean, on-schedule PB2/PB3 restart, or a secured 2041 extension. Downgrade-confirming risks: a copper/gold rollover, into which FCX's leverage would amplify the move.