Why Freeport-McMoRan Copper & Gold Stock Hasn't Hit Paydirt in 2014

Grasberg Mine. Source: Freeport-McMoRan.

The 2008 market meltdown hit stocks hard around the world, and mining and energy company Freeport-McMoRan Copper & Gold (FCX -1.96%) was no exception, seeing its stock lose more than 80% of its value during the plunge. Yet thanks to a quickly recovering economy and the company's exposure to the gold market, which remained strong in the years following the financial crisis, Freeport-McMoRan had climbed to new all-time heights by the end of 2010.

Since then, though, Freeport-McMoRan has faced some big challenges. Falling demand for copper quickly sent prices down sharply from their early 2011 highs, and the crash of the gold market last year put further pressure on the company. At the same time, Freeport's much-scrutinized move to give itself exposure to the fast-growing oil and gas industry has forced longtime shareholders to look at the company in an entirely new light. Let's take a closer look at Freeport-McMoRan to see what's in store for its future.

Stats on Freeport-McMoRan

Source: Yahoo! Finance.

A topsy-turvy time for Freeport-McMoRan
2014 has been a turbulent year for Freeport-McMoRan, despite the relatively modest move downward in its stock. On the mining side of the business, Freeport spent much of the year fighting with the Indonesian government over restrictions on exports of raw copper ore from its key Grasberg mine in the southeast Asian nation. Indonesia imposed a punitive tax on ore exports in an effort to expand domestic smelting capacity, attempting to persuade Freeport and mining peer Newmont Mining (NEM 0.67%) to process some of their production within Indonesia. Although Freeport-McMoRan has come to a resolution with Indonesia over copper exports, it had to agree to pay higher royalties as well as some taxes, and it also reduced its ownership of its Indonesian unit from more than 90% to 70% in favor of the Indonesian government and other local owners. Moreover, relative weakness in copper prices and uncertain levels of demand from key markets like China don't paint an obviously positive picture for the company going forward.

Source: Freeport-McMoRan.

Meanwhile, Freeport's new oil and gas business, which it acquired last year, has required constant attention as the company makes moves to shift its focus toward the most promising opportunities available. Despite the value that rival energy producers EOG Resources (EOG 0.67%) and ConocoPhillips (COP 0.39%) have placed on the Eagle Ford shale of southern Texas, Freeport sold off its assets there, reaping a $3.1 billion payday but transforming the focus of its portfolio of energy-related holdings. Freeport expects to make further major moves in its portfolio, with projections for sales of land-based assets that could bring in $4 billion to $5 billion. So far, Freeport has used proceeds from sales to invest even more heavily in the Gulf of Mexico, and although it has diversified its project mix to include at least some less risky plays, the company still needs its offshore bets to pay off in order to help the stock turn around.

Will Freeport-McMoRan bounce back?
The addition of the oil and gas business added substantial uncertainty to Freeport-McMoRan's earnings, as the success or failure of its exploration activities will have a huge impact on its future prospects. Although the sluggishness in the copper and gold markets have made Freeport's move seem smart thus far, investors have to get used to greater risk in the company's results.

Nevertheless, with the Indonesian dispute resolved, Freeport-McMoRan has potential to see a nice recovery on the mining side of its business. Last quarter, delays in getting Indonesian exports back on line caused copper sales to fall well short of Freeport's initial projections, but as expanded production capacity at its Morenci facility in Arizona gains momentum, Freeport should see better times ahead.

Like any other seller of commodities, Freeport-McMoRan relies on world-market prices to determine the size of its profit from its production activity. With some signs suggesting a return to global economic growth, Freeport's core business could start climbing again, and with good fortune from the exploration side of the business, Freeport shares could rise substantially from their current depressed levels.