This Copper Miner is About to Become an Energy Powerhouse

Freeport-McMoRan Copper & Gold will soon be much more than just a copper miner. It made huge acquisitions last year to break into oil and gas production in a big way.

Mar 14, 2014 at 10:27AM

Freeport Copper And Gold

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. 

Bob Ciura has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information