FCX Stock Analysis

Freeport-McMoRan (NYSE: FCX) is the largest mining company in the U.S. by market capitalization. FCX started the year down over 70%, trading at around $6.50, and with $20 billion in debt-fueled heavily by the acquisition of the oil and gas companies McMoRan Exploration Co. and Plains Exploration and Production Company. FCX’s venture into the natural gas space leads to a $12.1 billion write down in 2015 as a result of the oil-price route.

(Source: Bloomberg)

FCX closed under $4.00 on January 25^th, and on January 26, 2016, the company released its 4Q15 earnings with an adjusted loss of $0.02 per share, a performance that was actually quite better than the consensus estimate of $0.11 per-share loss. The company’s $3.7 billion dollars of revenue generated in the 4Q15 represents a year-over-year decline of more than 27%. In the fourth quarter, Freeport-McMoRan sold 1.15 billion pounds of copper, 20 million pounds of molybdenum, 13.2 million barrels of oil equivalent and 338,000 ounces of gold. As a major player in the materials space, the company is heavily affected by the prices of commodities, which are determined by the market. Concerns over the slowdown of the economy in China, the world’s largest buyer of materials, have caused the prices of commodities to be extremely volatile. China has been especially problematic for Freeport-McMoRan because Chinese buyers had previously purchased over 50% of FCX’s copper. Over the past 5 years, commodity metals have lost nearly 80% of their value, according to the S&P SPDR Metals & Mining ETF (NYSE: XME). Nevertheless, Freeport-McMoRan’s guidance calls for a 25% year-over-year increase in copper shipments and a 9.5% increase in energy sales. The company further explained that they expect their unit production costs decline in 2016. On January 26^th, FCX rose by 14% in the first hour of market activity, and it eventually closed up 6.6% from the previous days closing, at $4.20, still down over 30% for the year. During the five days between February 1^st and 5^th as the XME gained nearly 15%, and the prices of copper and gold began to rise as the dollar weakened. Demand for gold has been surging as investors are looking for a safer alternative to equities and bonds. All of these factors were good news for Freeport-McMoRan as the company began to rally, closing at $5.68 on February 5^th.