Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Does Freeport-McMoRan make money with Copper?

Strangely, a copper miner is among today’s fastest growing stocks. Mr. Market paid $8.59 for Freeport-McMorRan Inc. (NYSE: FCX) on 6 May 2020.

The price Mr. Market paid for Freeport-McMoRan (FCX) grew to $38.99 on 3 May 2021 and $42.07 on 6 May 2021. Thus FCX’s share price is almost five times higher than it was a year ago.

So why are today’s investors so interested in a company that calls itself the world’s copper miner? My guess is that investors have noticed the recent growth in copper prices.

Why are Copper Prices Growing

Notably, copper prices grew from $2.17 a pound on 16 May 2020 to $4.34 a pound on 3 May 2021, Macrotrends estimates.

The investors suspect that higher prices are a sign demand for copper is increasing. When demand for copper grows, Freeport can make more money by selling more copper.

Copper prices are rising because they use copper to create the wires that move electricity. In addition, they use copper to build electric motors. Thus, copper could be one of the building blocks in the green economy’s efforts to replace fossil fuels with electricity.

How Electric Vehicles will Increase the demand for Copper

For example, the average hybrid electric vehicle contains 85 pounds of copper, the Copper Development Association estimates. In comparison, the average plug-in electric vehicle contains 132 pounds of copper and the typical battery electric vehicle contains 183 pounds of copper.

Meanwhile, a battery electric bus could contain 814 pounds of copper. Consequently, electric vehicle maker BYD bought 26 million pounds of copper in 2016. The Copper Development Association estimates the demand for copper electric vehicles create could grow to 1,700 kilotons by 2027.

Hence, Elon Musk could be Freeport McMoRan’s best friend. Each Gigafactory and its imitators could use millions of pounds of copper. Moreover, some major car companies are planning to all-electric, which will increase the demand for copper.

For example, Jaguar plans to go all-electric by 2025, Volvo wants to go electric by 2030, and General Motors (GM) by 2040. Consequently, the world will need thousands of tons of additional copper that FreePort-McMoRan can provide.

How FreePort-McMoRan can profit from the Green Economy

Freeport-McMoRan (NASDAQ: FCX) could profit from the green economy with copper mines in North America, South America, and Indonesia. In particular, Freeport-McMoRan’s Lone Star Project in Arizona could produce 200 million pounds of copper a year.

In addition, Freeport-McMoRan’s Cerro Verde concentrating operation in Chile could produce 420,000 tons of ore in 2021. Between 1990 and 2019, Freeport’s PT-FI subsidiary produced 33 billion pounds of copper at operations in Indonesia’s Grasberg mining district. Freeport-McMoRan owns 48.76% of PT-FI and manages its operations in Papua (Indonesian New Guinea).

Other minerals Freeport-McMoRan produces include gold, molybdenum, and sliver. In particular, PT-FI mined 53 million ounces of gold at the Grasberg between 1990 and 2019.

 Is Freeport-McMoRan making money?

Interestingly, Freeport-McMoRan (FCX) is growing and making more money now.

For instance, Freeport-McMoRan’s quarterly revenues grew from $3.038 billion on 31 March 2020 to $4.85 billion on 31 March 2021. Dramatically, Freeport’s revenues grew by 59.64% in the quarter ending on 31 March 2021 Statista estimates.

Additionally, Freeport-McMoRan’s quarterly gross profit grew from -$77 million on 31 March 2020 to $1.637 billion on 31 March 2021. Plus the quarterly operating income rose from -$473 million on 31 March 2020 to $1.532 billion on 31 March 2021.

Hence, Freeport-McMoRan is growing and making more money. For instance, Freeport’s quarterly operating cash flow grew from -$38 million on 31 March 2020 to $1.075 billion on 31 March 2021. Similarly, the quarterly ending cash flow rose from $1.867 billion on 31 March 2020 to $4.835 billion on 31 March 2021.

Impressively, Freeport-McMoRan grew and made more money during a pandemic. Therefore, Freeport-McMoRan is pandemic proof.

What Value Does Freeport-McMoRan have?

One reason some investors will like Freeport-McMoRan is that it has a small amount of debt.

For instance, Freeport-McMoRan reported a quarterly financing cash flow of $141 million on 31 March 2020 to $184 million on 31 March 2021. Notably, Freeport-McMoRan’s total debt fell from $10.74 billion on 31 March 2020 to $9.809 billion on 31 March 2021.

 Thus Freeport-McMoRan came out of the pandemic with less debt. The company also added cash and value during the COVID-19 pandemic.

For example, Freeport’s total assets grew from $40.219 billion on 31 March 2020 to $43.643 billion on 31 March 2021. In addition, the cash and short-term investments grew from $1.715 billion on 31 March 2020 to $4.58 billion on 31 March 2021.

A Growing Value Investment

Therefore, Freeport-McMoRan (FCX) is a growing value investment with a growing stock price. Freeport-McMoRan is also a growing dividend stock.

Appealingly, FCX paid a 7.5₵ quarterly on 3 May 2021. That dividend grew from 5₵ on 14 January 2021. Overall Freeport-McMoRan paid an annualized dividend of 30₵ and a 0.78% forward annualized dividend on 3 May 2021.

Unlike many of today’s hot stocks, Freeport-McMoRan is a growing dividend stock, with rising value, a reasonable price, and a high margin of safety. Thus, I consider Freeport-McMoRan a stock all value investors need to investigate. Copper could be one of the hot investments of the 2020s, and Freeport-McMoRan (NYSE: FCX) could be the investment in copper.