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Tickers in this Article: FCX, RTP, PCU
New Orleans-based Freeport-McMoRan Copper and Gold (NYSE: FCX) completed the $26 billion dollar coup of Phelps Dodge earlier this month creating one of the world's largest copper mining companies.

Spreading Out Across the Globe
Phelps Dodge mining operations in the U.S., Chile, Peru and the Congo (estimated for 2009) gives Freeport-McMoRan diversification into both gold and copper sites outside of its Indonesian stronghold.

Prior to the acquisition, Freeport-McMoRan may have been best known as the owner of the Grasberg mine in Indonesia.

The Grasberg mine is recognized as one of the world's largest gold and copper mines. Freeport-McMoRan has a Contract of Work that grants them permission to mine the area until 2021 with options to extend the agreement.

Copper is one of the base metals in high demand by China and India for their infrastructure build out. Low copper supplies and high emerging market demand creates the perfect stage for mineral miners like Freeport-McMoRan to grow.

Copper and Gold
Freeport-McMoRan sold 1.2 billion pounds of copper and 1.7 million ounces of gold in 2006. Over the next 5 years, Freeport expects to sell 1.1 billion pounds of copper and 1.8 million ounces of gold per year. The estimates are made with price expectations of $2.50 per pound for copper and $600 per ounce for gold.

Copper concentrates were tight in 2006 and are expected to remain tight through 2008. Copper soared to $4.00 per pound in May of 2006 while gold also reached a peak of $725 per ounce.

The slowing U.S. housing market may exert downward pressure on copper prices in the near term, but demand from China and India is expected to balance out demand and create an environment of strong pricing. (For more insight into the the causes behind the housing market's rise and fall, check out American Dream Or Mortgage Nightmare?)

Gold investments from the Middle East and Asia are supporting demand along with general market fear over a weakening U.S. dollar and geopolitical risks.


Direct competitors for Freeport-McMoRan include Phoenix-based Southern Copper (NYSE: PCU) and London-based Rio Tinto Plc (NYSE: RTP).

With a market capitalization of $21 billion, Freeport-McMoRan is larger than Southern Copper Corp, but both miners are dwarfed by the $74 billon market cap of Rio Tinto.

Trading on the Cheap
Freeport-McMoRan is trading at a discount, with a forward price/earnings growth ratio (PEG) of 0.87. Low PEG ratios are a signal of strong expectations of future earnings growth. Freeport-McMoRan value is further supported by a low forward price/earnings ratio (P/E) of 9.7 which is below the industry average.

Corporate insiders at Freeport-McMoRan demonstrated their agreement with the positive sentiments expressed by banking analysts, by acquiring more that 2 million shares of FCX since the beginning of the year. Likewise, institutional investors acquired more than 8 million shares of FCX before the end of 2006.

Solid Long-Term Fundamentals
Copper is currently trading at over $3.00 lb., while gold is trading just above $660 per ounce. Factors that will contribute to the long term success of Freeport-McMoRan include low customer inventories, high demand from emerging markets which will lead to higher commodity prices and drive top line revenue growth.

Freeport-McMoRan is already up 27% for the year and it is currently trading near $66. With its strong fundamental and seemingly discounted valuation, FCX shares could still have more gains in store for shareholders.

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