Will Freeport-McMoRan Stock Recover?

Freeport-McMoRan (NYSE:FCX) shareholders have suffered a torrid few months with shares falling almost 25% from $54 per share back in May.

In light of the run gold has been on recently, the share price performance has come as a surprise to those following one of the world’s largest copper, gold, and molybdenum production companies. Indeed Freeport is so large it has mining operations around the world from North America to South America, and all the way to Indonesia.

So what’s up with Freeport-McMoRan and will it bounce back?

Freeport Is a Copper Producing Behemoth

Although gold falls within its purview, copper is the key metal produced by Freeport, which ranks as one of the world’s largest copper producers. Demand for copper is widespread, from construction and electronics to renewable energy industries.

The Grasberg mine in Indonesia is one of the company’s largest assets, and features vast copper and gold deposits that materially impact Freeport’s financials.

In 2023, Freeport-McMoRan mined over 4.2 billion pounds of copper, which collectively contributed $24.5 billion in total revenue. So while it’s true that the company also produces gold and molybdenum, copper remains the cornerstone of its financial success, accounting for nearly 70% of its annual revenue.

Copper Market Dynamics

This year, copper prices have been on the rise on the back of strong demand and supply shortages. That’s not entirely a surprise given that copper is essential for manufacturing electric vehicles and demand has been growing in that industry.

Yet copper is also used in a vast array of use cases from power lines to wind turbines and even In data centers for artificial intelligence. There are no signs of any of these applications seeing lower demand in the coming years which is why Wall Street remains optimistic about the prospects for copper prices, forecasting growth for the foreseeable future.

As last year came to a close the steady demand and growing demand for copper was evident when Freeport-McMoRan hit its initial target of producing about 200 million pounds of copper annually.

In Q2 2024, the company produced 55 million pounds of copper, an increase of 29 million pounds compared to the same period a year prior.

The goals weren’t reached without hindrances, though. Price fluctuations in the commodities market are notorious and continue to be so but management has navigated the choppy waters well, whether that’s in the form of cost-cutting or via expanding resources organically through internal development or inorganically via acquisition.

Management has also made a concerted effort to improve operational efficiencies, which were evident in the company’s investment in leaching technology that has helped boost production levels, increase copper output and extract other resources from existing mines.

Looking ahead, management plans to expand its annual copper production by 800 million pounds over the next three to five years without the need to open new mines.

How Is Freeport-McMoRan’s Financial Performance?

Freeport’s year-over-year Q2 profits increased and topped Wall Street analysts’ estimates. Net income for the quarter came in at $616 million and $0.42 per share, nearly doubling Q2 2023’s $343 million, or $0.23 EPS.

Adjusted earnings were $667 million, or $0.46 per share, for the period, beating analysts’ expectations of $0.38 per share.

Revenues rose by 15.5% to $6.62 billion versus Q2 2023’s $5.74 billion thanks to solid demand and increased prices.

Consolidated sales for Freeport-McMoRan in Q2 2024 were:

• Copper: 931 million pounds, down 10% from Q2 2023 due primarily to shipping delays within Indonesia
• Gold: 361,000 ounces, down 27% from Q2 2023
• Molybdenum: 21 million pounds

The company expects to close out 2024 with the following consolidated sales figures:

• Copper: 4.1 billion pounds
• Gold: 1.8 million ounces
• Molybdenum: 82 million pounds

So, is now the time to invest in Freeport-McMoRan?

Will Freeport-McMoRan Stock Recover?

Analysts expect Freeport-McMoRan stock to recover to $54.54 per share, representing a 37% increase from current levels.

A 10-year discounted cash flow forecast analysis paints an even more bullish scenario, predicting that the share price may rise to as high as $60 per share.

Certainly, there is a lot to like about Freeport, not least the 1.45% dividend yield and 44.7% payout ratio that suggests ample room to increase it if management and the Board of Directors chooses to do so.

The bearish scenario is dotted with argument over copper price volatility, geopolitical risks, and shipping delays, particularly in regions where Freeport-McMoRan operates, such as Indonesia, might make investors cautious about buying into the mining company at this moment.

And certainly there are other reasons to be a little cautious. For example, the recent bearish share price trend on the technical front and the moderate level of debt carried on the fundamental front.

If were to look overall, though, the cash flows are pretty healthy, as are the profits, and so the growth and relative value are where the issues lie. With strong secular demand for copper unlikely to abate in the coming half decade or so, the odds favor the bulls enjoying a ride back to former highs at some stage in the medium term, even if the short-term sentiment is dreary.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.