Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Copper Miner is About to Become an Energy Powerhouse

Investors likely know Freeport McMoRan Copper & Gold (NYSE: FCX  ) as just a heavyweight in the copper and gold mining industry. Going forward, all that's about to change. Not only will Freeport remain a mining giant, but it's poised to make huge inroads in the energy sector as well. That's because Freeport is undergoing a major strategic shift. Management has targeted energy as a booming opportunity and has made several high-profile acquisitions to significantly boost its presence in the oil and gas industries.

Freeport is about to become a very diversified company with a strong presence across the mining and energy markets. That's why management is optimistic about the future, and why Foolish investors should be optimistic as well.

Cyclical mining downturn prompts diversity
The mining industry is in a very difficult position right now. The industry faces several headwinds, the most concerning of which being the sharp decline in precious metals prices over the past year. Copper and gold prices are significantly lower, which has brought down profits for all companies involved in mining activities. Signs abound that things are bad.

This pricing pressure helped contribute to Freeport-McMoRan's diluted earnings falling 17% last year. In addition, copper miner Southern Copper (NYSE: SCCO  ) saw its sales and earnings per share fall by 10% and 15%, respectively, despite keeping production relatively unchanged in 2013.

The carnage sweeping through the mining industry has affected heavy equipment makers as well. For example, Joy Global (NYSE: JOY  ) , which provides heavy machinery suited for the mining industry, is really struggling right now. Joy Global's sales and operating profit fell 11.5% and 30%, respectively, last year. Things didn't get much better in Joy Global's fiscal first quarter. Net sales fell 27% and earnings per share collapsed by 65%.

How long the downturn in precious metals prices lasts is anyone's guess, but Freeport-McMoRan isn't sitting on its laurels waiting for a turnaround. It's determined to grow and has targeted energy as its next frontier.

Freeport McMoRan: An energy powerhouse in the making
While Freeport-McMoRan muddles through the tough environment for copper and gold mining, it's going ahead with its plans to enter the energy space for a diversified business model. The company will soon be diversified away from being a mining pure-play. Freeport made two separate acquisitions last year, buying Plains Exploration & Production Company and McMoRan Exploration Co. for a total of $19 billion. These acquisitions have added a high-quality portfolio of oil and gas assets to its operations.

The two acquisitions allow Freeport-McMoRan entry into both onshore and deep-water oil and gas production. This sets Freeport up perfectly to profit from the energy boom taking place right now in the United States. Going forward, Freeport now has access to some of the most promising fields in the country. These include the Haynesville and Eagle Ford shale plays, where future production should be strong. Such promising production has prompted Freeport management to expect its oil and gas production to double over the next five years.

Once Freeport-McMoRan builds out its energy business, its oil and gas operations will make up a significant amount of the company's profits. In all, management expects 25% of its 2014 earnings before interest, taxes, depreciation, and amortization (EBITDA) to come from its oil and gas businesses.

The bottom line is that while it's easy to become pessimistic of the major gold and copper miners like Freeport-McMoRan, in light of the carnage sweeping through the mining industry, there's reason to be optimistic too. Freeport is overhauling its business to become much more than just a gold and copper miner. It's quickly and quietly becoming an energy giant as well, thanks to an aggressive acquisition strategy.

Freeport-McMoRan now has access to some of the most highly productive onshore developments in the United States, as well as a foothold in deep-water drilling as well. Freeport's savvy strategic moves place the company in prime position to capitalize on the domestic energy boom.

Have you missed out on the record oil and natural gas production that has been revolutionizing the United States' energy position? If so, it's not too late to start investing in it. For this reason, the Motley Fool is offering a comprehensive look at three energy companies with plenty of room left to grow. To find out which three companies we have identified, we invite you to 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. 

Read/Post Comments (0) | Recommend This Article (1)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2876018, ~/Articles/ArticleHandler.aspx, 9/1/2015 12:26:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated Moments ago Sponsored by:
DOW 16,175.13 -352.90 -2.14%
S&P 500 1,931.94 -40.24 -2.04%
NASD 4,690.58 -85.93 -1.80%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 12:10 PM
FCX $9.84 Down -0.81 -7.57%
Freeport-McMoRan C… CAPS Rating: ****
JOY $22.82 Down -1.40 -5.78%
Joy Global, Inc. CAPS Rating: ****
SCCO $25.76 Down -0.90 -3.38%
Southern Copper Co… CAPS Rating: ***