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Actionable news in FCX: FreePORT-MCMORAN Inc,

This Stock Is A Strong Copper Recovery Play

Summary

Freeport-McMoRan was hurt by both the general commodity downturn starting in 2011 followed by the oil and gas downturn starting in 2014.

We can value Freeport-McMoRan's copper business at just over $70 billion and should oil prices recover by 50%, still 40% below its pre-crash highs, the business will generate $1 billion.

As a result, I recommend investors invest in Freeport-McMoRan at the present time.

Introduction

Freeport-McMoRan (NYSE: FCX) is a mining company based in Phoenix, Arizona. The company is the largest copper and molybdenum producer in the world with the vast majority of the company's revenue coming from copper. However, the company also recently started entering the oil markets as a source of increased revenue. This has led to increased difficulties from the oil crash but as prices recover, this could help Freeport's earnings.

Freeport-McMoRan Open Pit Mine - PGM Blog

Freeport-McMoRan has had an incredibly difficult time recently. The company's dual exposure to both oil and commodities hurt it both with the initial 2011 commodities crash followed by the 2014 oil crash. The company saw its stock price peak at just over $60 per share in late-2010 before dropping to roughly the mid-$30s before the start of the oil crash.

Once the oil crash started, the company's stock price began to fall harder faster with a bottom set at just under $4 per share in January 2016. The company then saw its stock recover quickly after this bottom to roughly $14 per share in late April this year. Since then the company's stock has dropped back down and is currently hovering at just over $10 per share.

Freeport-McMoRan Financial Achievements

Unlike companies like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) which ran into difficult times just two year ago, Freeport-McMoRan has been in difficult times for more than half a decade. The company has had a long time to worry about fixing its cost structure, improve production, and sell off over-priced assets. As a result, we will start this section by looking at the improvements that Freeport-McMoRan has made since the start of the crash.

Freeport-McMoRan Asset Sales - Freeport-McMoRan Investor Presentation

The above slide dictates the financial improvements that Freeport-McMoRan has made since the start of the oil crash. The company has sold more than $4 billion in assets which has strengthened its balance sheet and allowed the company to focus on its high-rewarding assets. These asset sales have allowed Freeport-McMoRan to significantly improve its cost structure for copper from $1.50 per pound in cash costs (after by-product) to $1.33 per pound (after by-product) an improvement of more than 10%.

The company has restructured $1.1 billion in drilling contracts allowing its costs to decline significantly. This has combined with the company's declining capex which has gone down from $855 million in the quarter a year ago by 48% to just $441 million currently. By reducing its costs, Freeport-McMoRan needs lower commodity prices to break-even which should allow its cash flow generation to improve significantly.

Freeport-McMoRan Year End Debt Based on Copper Price - Freeport-McMoRan Investor Presentation

The above slide shows Freeport-McMoRan's balance sheet improvement from its actions. At the end of June 2016, Freeport-McMoRan had an astounding $18.8 billion...


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