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Amid the ongoing correction in equity markets, the copper market stands out with prices nearing an all-time high, sitting around $5.10 per pound. For those looking to capitalize on this growth, investing in copper and gold mining company Freeport-McMoRan (FCX 4.76%) presents a compelling opportunity. Here’s an analysis of the current situation.
Copper Prices on the Rise
The current figures reflect the Chicago Mercantile Exchange (CME) March futures price, which serves as a benchmark for the U.S. copper market. Year to date, CME copper prices have surged by 27%. Although the London Metal Exchange (LME) has not reached the same peak, it reports a noteworthy increase of nearly 14% this year.
The price divergence between CME and LME indicates a growing concern regarding potential tariffs on imported copper by the Trump administration. This anticipation has sparked a rush among U.S. users and investors to secure supplies in advance.
While the imposition of tariffs is uncertain, there are several key points regarding their potential impact:
- The Trump administration has prompted the Commerce Department to investigate tariffs on copper.
- Approximately 45% of copper consumed in the U.S. is imported, making it essential for various industries including renewable energy, electric vehicles, and advanced infrastructure.
- Regardless of tariff implementation, the current policies suggest a trend towards protectionism, likely favoring domestic production of copper.
- An increase in CME prices will likely influence LME prices positively.
Given these dynamics, Freeport-McMoRan appears well-positioned to thrive. Here are three reasons supporting this outlook:
1. Domestic Copper Production
Freeport-McMoRan’s production data for 2024 highlights its significant role in the U.S. copper landscape. CEO Kathleen Quirk noted during a recent earnings call that “We essentially sell all of our products in the U.S. While the U.S. does import copper, we do not export it.”
This local production advantage shields Freeport from retaliatory tariffs imposed by foreign nations, allowing it to capitalize on increasing CME prices.
Freeport-McMoRan Regions
Copper Production for 2024 (in pounds)
- North America (U.S.): 1.246 billion
- South America: 1.168 billion
- Indonesia: 1.8 billion
Data source: Freeport-McMoRan.
It’s worth noting that Freeport’s production costs in the U.S. are significantly higher compared to its operations in South America and Indonesia. As of the fourth quarter of 2024, the company noted a net cash cost of $3.04 per pound for U.S. copper, compared to $2.36 in South America and a net cash credit of $0.08 in Indonesia. This cost structure means Freeport is more sensitive to price increases in the U.S. market, amplifying its profit potential.
2. Global Production Strategy
Freeport’s international production primarily serves markets outside the U.S. Quirk explained that output from Indonesia is mainly directed towards Asia, while production from South America does not generally flow to the U.S. Consequently, any tariffs enacted in the U.S. would not adversely affect Freeport’s international operations, allowing the company to leverage higher LME prices.
3. Capacity for Increased Production in the U.S.
Should protective measures be enacted—and regardless of tariffs—Freeport has the capabilities to expand its copper production domestically. The company is implementing a low-cost leaching initiative expected to yield between 300 million to 400 million pounds of copper by 2026, with an ambitious goal of reaching 800 million pounds annually by 2030.
In addition, Freeport is actively exploring expansion opportunities. Management anticipates that the current production of 300 million pounds in Lone Star, Arizona, can be doubled through ongoing feasibility studies. Furthermore, a decision regarding an expansion project in Bagdad, Arizona, could lead to an additional output of 200 million to 250 million pounds starting in 2029.
Investment Perspective
The company stands to gain from various market scenarios, especially with copper prices sustained at approximately $5 per pound. Management projects earnings before interest, taxes, depreciation, and amortization (EBITDA) of $15 billion for the years 2026 and 2027. With a current market capitalization of $58.1 billion, Freeport-McMoRan may be undervalued given these favorable copper market conditions.
Source
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