2012 Preview: Freeport-McMoRan Copper & Gold

With 2011 finally in the books, it's time to reflect on what has transpired this year and which companies could be facing business-altering decisions in 2012. On today's plate we have one of the world's largest providers of copper, gold, and molybdenum, Freeport-McMoRan Copper & Gold (NYSE: FCX  ) .

But before we dig too deeply into what 2012 may have to offer, let's get a quick snapshot at how 2011 treated shareholders.

Freeport-McMoRan stats and facts

2011 Stock Return (39.5%)
Price-to-Earnings (TTM) 6.4
Price-to-Sales (TTM) 1.6
Cash / Debt $5.13 billion / $3.54 billion
Projected 5-Year Growth Rate 6.1%
Forward P/E 7.8

Source: Yahoo! Finance. TTM = trailing 12 months.

What seemed like a pretty good year for metal prices as a whole turned out to be nothing of the sort for precious metals miner Freeport-McMoRan. 2011 saw the company lose nearly 40% of its value as copper and gold prices ended the year on a low note and worries about the Chinese economy have left shareholders biting their nails. But these results are in the past. Let's look ahead and see what could be driving Freeport-McMoRan's stock price in 2012.

What to expect
Shareholders in Freeport-McMoRan should be prepared for a heavy dose of China, China, and more China in 2012. Exports to China account for a significant portion of Freeport's revenue and any disruption in China's economy could have ripple effects, not only with Freeport, but throughout the entire sector including Southern Copper (Nasdaq: SCCO  ) and Thompson Creek Metals (NYSE: TC  ) . China is doing everything it can to invigorate its economy, including scrapping its inflationary controls, but it remains to be seen if the Chinese demand that metal miners have become accustomed to will come crashing down.

Copper prices will also be a big factor in 2012, as they usually are for Freeport. With copper prices ending the year more than $1 off their mid-summer highs, Freeport will have to closely monitor production and its steadily rising mining costs or it could be faced with yet another earnings reduction. Call it a hunch, but with China's growth slowing and the country being the predominant purchaser of Freeport's copper, I'm not feeling very bullish about the metal's 2012 outlook.

Dividends could also be a driving factor for Freeport's stock price this year. Let's face it, the company's quarterly payout history is erratic at best, so tying its dividend to operating cash flow or the spot price of copper, much like rival Newmont Mining (NYSE: NEM  ) has done to the spot price of gold, might perk up interest in the stock. Freeport's balance sheet boasts a rarity not often seen in the mining sector -- more cash than debt. I feel Freeport would be wise to consider boosting its dividend or buying back shares in 2012.

Foolish roundup
This is the first company of the year that I'm particularly torn on. From a long-term view, there really aren't any macroeconomic problems set to derail Freeport from being profitable. But, looking at this as just a call in 2012, Freeport is going to have quite a struggle ahead of it thanks to weakness in China. Copper prices could remain under pressure for much of the year and earnings estimates still appear high to me. Personally, I like the company, but I'd be holding off for a better entry point than where the stock is currently trading.

What are your thoughts on Freeport-McMoRan heading into 2012? Share them in the comments section below and consider adding Freeport-McMoRan to your free and personalized watchlist to keep track of the latest news with the company.

Also, if you're looking for one more great idea heading into the new year, consider downloading a copy of our latest special report, "The Motley Fool's Top Stock for 2012," in which our chief investment officer highlights a company dubbed "the Costco of Latin America." The best part of all, this report is completely free!

Fool contributor Sean Williams owns shares of Thompson Creek Metals, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always puts the pedal to the metal when it comes to uncovering the truth.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 03, 2012, at 1:02 PM, MAURIZIO400 wrote:

    just curious to know whether you are still of the same opinion after the data that came out ioday on building in the US and of china being not such a slowdown after all

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