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Freeport-McMoRan: Mining Impressive Profits

By Dan Weil   |   Thursday, 19 May 2011 03:10 PM

Freeport-McMoRan Copper & Gold (FCX) is in the enviable position of being the largest publicly traded producer of copper and molybdenum, which is used as an alloying agent in steel. It’s enviable because many experts expect the huge rally in commodity prices to last for years.

The company’s assets include the Grasberg mining complex in Indonesia, the world's largest copper and gold mine in terms of recoverable reserves, and mines in North and South America. Freeport also is developing the promising Tenke copper and cobalt deposit in the Democratic Republic of Congo.

Copper prices have doubled over the past six years, and given the strength in emerging market economies that trend is unlikely to abate anytime soon. Demand for copper from exchange-traded funds should buoy the metal as well.

On the supply side, labor unrest and a lack of excess capacity speak to higher copper prices. So now is a good time to consider Freeport-McMoRan’s stock.

The company’s profit surged 67 percent in the first quarter, to $1.5 billion from $897 million a year earlier, topping analysts’ expectations. Sales jumped 31 percent to $5.71 billion.

Rising prices lead to payout

Freeport-McMoRan benefited from a 26 percent rise in copper prices during the period, the same increase in gold prices, and a 20 percent appreciation in molybdenum prices. As a result of the strong performance, the company decided to pay a special dividend of 50 cents a share. It also raised its 2011 revenue estimate.

Standard & Poor’s analyst Leo Larkin has a four-star buy rating on Freeport-McMoRan’s stock.

“We think that higher prices for copper, gold and molybdenum, along with a slight rise in copper output will offset a projected decline in gold production and permit a 15 percent sales gain in 2011,” he writes.

“Longer term, we think rising secular demand for durable goods in China and India, along with less rapid increases in the supply of copper, will support generally higher prices, sales, earnings and reserves."

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Freeport-McMoRan Copper Gold (FCX) is in the enviable position of being the largest publicly traded producer of copper and molybdenum, which is used as an alloying agent in steel. It s enviable because many experts expect the huge rally in commodity prices to last for...
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2011-10-19
 

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