Does Freeport-McMoRan Have More Room to Run?

Freeport-McMoRan Copper & Gold (NYSE: FCX  ) has become the company that everybody either loves or loves to hate.

As August neared its conclusion, one firm that shall remain unnamed slapped a strong sell rating on the company's shares. That's a relatively seldom-used analytical signal that imperatively says something like, "Unload your shares in this one immediately, if not before."

Timing is everything
Unfortunately, however, that strong negative message was delivered just as those same shares prepared to gain another 10% within a month, following upon a similar increase that they'd recorded during the prior 60 days. Which brings us to a query about whether Fools should initiate or add to positions in Freeport as we move through the final quarter of what, for the company, has been an action-packed and frequently taxing 2013.

Indeed, the past couple of years have been mighty challenging for Freeport -- and its shareholders. You may recall, as we entered 2012, management was going toe-to-toe with unhappy -- and admittedly underpaid -- workers at its giant Grasberg copper and gold mine in Papua, Indonesia. A sufficiently high percentage of Grasberg's 24,000 employees joined a work stoppage and the facility was shuttered for a time.

Getting off course?
Then last December, management announced Freeport-McMoRan -- already the world's largest publicly traded copper producer -- would acquire a pair of U.S. oil and gas producers: Plains Exploration and Production and McMoRan Exploration. Consternation immediately became the investment community's order of the day, based on Freeport's movement beyond mining, the overlaps that existed among officers and directors of the three companies, or both.

Slightly more than a month before the June closing on the purchases, a tragedy befell the Grasberg complex when 28 workers lost their lives during a cave-in in a training area at the facility. Obviously, one result was renewed anger on the part of the workers' union.

All this occurred against a backdrop of gyrating copper prices. In early February of this year, the red metal traded at slightly more than $3.80 per pound, only to slide to close to $3.00 during the past summer. Since that time it's rebounded to nearly $3.30.

The strongest player in a tough year
And all things considered, while Freeport's shares are down almost 4% in 2013, that nevertheless compares favorably with a nearly 17% slide for BHP Billiton (NYSE: BHP  ) , the giant miner (including copper) and oil and gas producer. Rio Tinto (NYSE: RIO  ) , another big miner and the world's fifth-largest copper producer, has seen its shares drop by about 18%, while those of pure play Southern Copper (NYSE: SCCO  ) have lost about 31% of their value this year.

Positives
So Freeport-McMoRan has more than held its own. But beyond that, there are at least five strengths that I believe the company can contribute to its shareholders:

Solid mining properties. In addition to Grasberg, the company operates copper mines in North and South America and in Africa, along with a pair of molybdenum mines in the U.S. That geographic diversity is a plus, and the company's long-lived assets are likely to grow, as expansion programs are under way on all four of the continents.

Energy synergy. Initially, I wasn't particularly pleased about Freeport's decision to venture into energy. But I've long heralded BHP for the balance provided by its oil and gas activities, so why not view the American company similarly? I especially like Freeport's efforts in the deepwater Gulf of Mexico. For instance, it has a fully 50% stake in the promising Phobus discovery, which was made there recently by a group in which Anadarko Petroleum is the operator.

A mollified union. Freeport and its Grasberg union have reached a new wage pact, and a fresh contract is likely to be signed within the next couple of weeks.

Balance sheet history. The company's balance sheet is groaning under the debt that was issued to accomplish the energy acquisitions. But that also was the case a half-dozen years ago when Freeport bought Phelps Dodge, a copper producer twice its size. At that time, management was amazingly successful in reducing the company's leverage more rapidly than was anticipated. I wouldn't be surprised by a repeat performance.

Copper's acting well. Despite our federal government's shutdown, which has induced pain in the markets and among commodities prices, copper is generally holding its own following its aforementioned bounce from $3.00.

The bottom line
There are other reasons why I especially like Freeport-McMoRan. I'll describe them in subsequent articles. For now, however, I'll simply close by noting that I own shares in the company, and I'm happy to do so.

Freeport's movement into energy may have been far wiser than was first thought. After all, the U.S. energy scene is virtually exploding these days. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


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