Copper prices have taken a hit, dropping from over $5 per pound in May to around $4.12 per pound recently. This decline has impacted the share price of copper miner Freeport-McMoRan (NYSE: FCX), pushing it down by nearly 18% since copper crossed the $5 mark. However, these market dips often present lucrative buying opportunities in commodity stocks, and Freeport-McMoRan is no exception. Here are three compelling reasons why traders should consider adding FCX to their portfolios now.
Freeport-McMoRan’s Leaching Initiative
Freeport-McMoRan’s innovative leaching initiative is a game-changer. This process involves extracting copper from existing stockpiles that have already been mined, allowing the company to produce copper at significantly lower costs. In the second quarter, Freeport’s unit net cash cost of copper stood at $1.73 per pound. However, the cost per pound for the leach initiatives is even more impressive, coming in under $1 per pound incrementally, as highlighted by CEO Kathleen Quirk during the recent earnings call.
This cost-effective initiative is not only ahead of schedule but is also beginning to play a crucial role in Freeport’s copper sales. The company plans to sell 4.1 billion pounds of copper in 2024 and has already achieved a run rate of 200 million pounds through the leaching initiative in the second quarter. Looking ahead, Freeport aims to increase this to 400 million pounds in the next few years and eventually reach 800 million pounds over the long term, representing nearly 19.5% of its expected total copper sales.
Promising Growth Opportunities
While the leaching initiative stands out as a cost-efficient way to boost copper production, Freeport-McMoRan also has several other expansion projects in the pipeline. This is particularly advantageous in an industry facing challenges in securing new mining permits.
One notable project is the expansion of an existing mine in Bagdad, Arizona. Management is targeting an investment decision by the end of 2025 with a start-up planned for 2029. Quirk has indicated that this expansion could more than double current production levels to over 300 million pounds per annum. Additionally, Freeport has significant potential expansion projects in Lone Star, Arizona, and El Abra, Chile, slated for the early 2030s.
Valuations and the Bullish Case for Copper
Investors and traders alike need to be bullish on the long-term price of copper or at least comfortable with the current price levels to justify investing in Freeport-McMoRan. The bullish case for copper is strong, driven by the metal’s critical role in the electrification trend of the economy. This includes electric vehicles, charging networks, renewable energy, industrial automation, and smart, connected infrastructure.
Moreover, the growing investment in AI applications is boosting demand for data centers, indirectly increasing copper demand. Traditional sectors like construction, transportation, and defense continue to support copper markets as well. These long-term growth trends are likely to underpin demand even during periods of cyclical weakness, such as the current downturn affecting industries like construction.
On the supply side, significant new copper supplies will take years to come online, bolstering the bullish case. If you subscribe to this outlook, gaining exposure to copper through a high-quality company like Freeport makes strategic sense.
Even with copper prices remaining at current levels, Freeport-McMoRan represents excellent value. Management projects generating $11 billion in EBITDA in the 2025/2026 timeframe, assuming copper prices stay at $4 per pound. With a current enterprise value of $69.2 billion, the stock trades at just 6.3 times EBITDA, a favorable valuation by any standard.
A Stock to Consider Buying
Freeport-McMoRan’s recent second-quarter results were solid, with EBITDA reaching $2.7 billion despite challenges like lower ore grades in North America. The success and ahead-of-schedule progress of the leaching initiative further strengthen the case for the stock.
Given these factors, Freeport-McMoRan’s stock appears to be an attractive buy at its current valuation. Traders should consider this opportunity to invest in a company with promising growth prospects and a strong position in the copper market.
