It's not all that often that the Street seems to agree on something, but there is widespread agreement among analysts and investors that Freeport McMoRan's (NYSE:FCX) bids for Plains Exploration (NYSE:PXP) and McMoRan Exploration (NYSE:MMR) are both bad ideas. Assuming they go through, then, Freeport McMoRan may find its luster as a copper play dulled. Lucky for investors, then, a new option may be on the rise.

Guide To Oil And Gas Plays: We've got your comprehensive guide to oil and gas shales in North America.

It Hasn't Been an Easy Ride
The new option I'm referring to is First Quantum Minerals (OTC:FQVLF). First Quantum may be best known for an unfortunate event a few years ago, when the Democratic Republic of Congo expropriated the company's assets within that country. The company ultimately reached a settlement with Eurasian Natural Resources (OTC:EURNY) for $1.25 billion, but it was clearly a setback for the company.

First Quantum has recovered well, and has substantial copper assets in friendlier locales like Zambia, Finland and Peru. While First Quantum is a copper producer today, it's also a growth-oriented company as management intends to triple production by 2016.

SEE: Evaluating A Company's Management

Now Trying to Get Even Bigger
The reason I mention First Quantum as a potential option for disgruntled Freeport investors is that the company is trying to upgrade itself even further. The company has made two unsuccessful friendly bids for Inmet Mining (TSE:C.IMN), (a fellow Canadian copper miner), and has now launched a hostile bid.

The latest bid (the hostile one) is a slight improvement from the last friendly bid and values the company at C$72 a share (about 5.5 times the average sell-side 2013 EBITDA estimate). The bid is a little convoluted, as it offers three different options to Inmet investors. Inmet investors can choose from all cash, 3.2962 First Quantum shares and C$0.01 per share, or basically a half-and-half offer of C$36 per share and 1.6484 First Quantum shares.

It's not hard to see why First Quantum wants Inmet. Not only does Inmet operate in friendly areas like Spain, Turkey and Finland, it also has the Cobre Panama project - one of the only top-tier copper projects not currently in the hands of a large mining company. Not only does Cobre Panama potentially hold sizable amounts of copper (perhaps over 260 karat per year), but the production costs look quite favorable once the mine is up and running.

Should First Quantum get Inmet, the combined company would likely be a top-five producer by 2018 with over 1 million metric tonnes of copper production. It would also give the combined entity three top-tier development projects, an appealing blend of production and growth projects and a more diverse asset base spread across Zambia, Panama and Finland.

SEE: Analyzing An Acquisition Announcement

Go Bigger, or Go Home
All of that said, I don't think C$72 gets the deal done. At five-and-a-half times EBITDA, this deal comes in below the recent average of copper transactions (about six-and-a-half times), and there's no reason to think that Inmet should get a discount (even if there are sizable capex demands for Cobre Panama). First Quantum will likely have to go at least to C$80 (if not C$90), but the good news is that the company can pay these higher bids without really losing much value in the process. In other words, C$72 for Inmet would certainly be a bargain worth celebrating, but the deal still makes economic sense at higher levels.

The Bottom Line
With Freeport's ill-considered foray into petroleum and natural gas, names like Southern Copper (NYSE:SCCO) and Teck Cominco (NYSE:TCK) start looking marginally more interesting as alternatives. I do believe, though, that First Quantum is also very much worth a look - even though it's not listed on a United States exchange and buying these shares will require a little extra work (and likely a higher commission).

Absent a deal for Inmet, I believe these shares are worth at least C$25, and that's without giving much credit to the company's growth/production expansion potential. Clearly this company needs a healthy market for copper to really thrive, but investors who believe there is still room to run in the commodity super-cycle should definitely spend a little time learning more about First Quantum.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.

Related Articles
  1. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  2. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  3. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  4. Economics

    4 Countries Pleading for Higher Commodity Prices

    Discover what countries are struggling the most from the price collapse in commodities and what these countries require to return to economic growth.
  5. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  6. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  7. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  8. Stock Analysis

    Glencore Vs. Noble Group

    Read about the differences between Glencore and Noble Group, two companies in the commodities business. Learn about accounting accusations facing Noble Group.
  9. Stock Analysis

    The Top 5 Platinum Penny Stocks for 2016 (PLG, XPL)

    Examine five penny stocks in the platinum mining business that investors may wish to consider adding to their investment portfolios for 2016.
  10. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center