Freeport-McMoRan Seeing Light at the End of the Tunnel
Dec 3, 2019 by InvestorDestination Team
Freeport-McMoRan Inc (NYSE: FCX) has been struggling for the last several years, partly due to self-inflicted wounds. When oil prices were about to crash, it acquired an oil and gas operation, which strained its balance sheet. The company was forced to sell assets when commodity prices were low and sell its shares when its stock price was low. Then it went through the Indonesia saga, which resulted in Freeport divesting a significant portion of its interest in the copper and gold mines in Indonesia last year. Finally, it might be seeing some light at the end of the tunnel.
This year the company is transitioning from open pit to underground mining in its Indonesian mines. It will produce almost 50% less copper in Indonesia compared to last year. However, it is ramping up its underground production. It is also expanding its production in North America - Lone Star project. According to the company, by 2021, it will increase its copper production by 30% and gold production by 70%. It is improving its production efficiency using artificial intelligence and machine learning, which will result in a 25% cost reduction. The company expects to double its EBITDA by 2021, even if copper prices stay the same.
The question is, can the management deliver? The current CEO has successfully navigated the company through tough times. So, we think the management will deliver on its promises. During this summer, both the CEO and CFO have purchased shares in the open market.
For the last several years, copper prices were low. It was due to oversupply and concerns about China slowing down. Now tariff uncertainties are casting shadows on copper prices. However, according to industry experts, copper fundamentals are strong. Electrification and alternative energy will act as a catalyst for the long-term demand for copper. Due to prolonged low copper prices, mining companies are not investing in production expansion. Supply constraints and long-term demand growth will act as a catalyst for an increase in copper prices.
Copper fundaments are strong; The Company has strengthened its balance sheet and focused on increasing shareholders' value. So, it is worth considering for your long-term portfolio,
Disclaimer : InvestorDestination.com is not operated by a broker, a dealer, or a registered investment advisor. Under no circumstances does any information posted on investordestination.com represent a recommendation to buy or sell a security. In no event shall investordestination.com be liable to any visitor or third party for any damages of any kind arising out of the use of any content published or available on investordestination.com, or relating to the use of, or inability to use, investordestination.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security. The information on this site is in no way guaranteed for completeness, accuracy or in any other way.