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This Copper Miner Is Still Cheap

Jim Mueller
November 16, 2011

This article is part of our Rising Star Portfolios series.

It's been a bit over a month since I first purchased shares of Freeport-McMoRan Copper & Gold (NYSE: FCX  ) for my Messed-Up Expectations portfolio. A month ago, I felt the shares were cheap because Mr. Market seemed convinced the world was coming to an end. Well that hasn't happened (yet), and I still believe the share price of Freeport is cheaper than the value of the company.

Three reasons to buy
In my original write-up, I gave three reasons for buying shares in this company:

  • A low consolidated cost of production, allowing profits to roll in at today's copper prices.
  • A strong balance sheet, especially when compared to competitors, and low debt to equity.
  • A share price sitting well under its net-net price.

Those haven't changed.

First, over the first nine months of this year, average cash cost per pound of copper has been $0.84, nicely below last year's level of $0.87. With copper currently trading at about $3.45 per pound, Freeport is nicely profitable.

Second, its balance sheet remains as strong as ever. Especially pleasing is that Freeport has increased its net cash position by more than $700 million in the last quarter.


Net Cash (net debt)

Total Debt to Equity

Freeport ($1.6 billion) 19.6%
Rio Tinto (NYSE: RIO  ) $10.3 billion 26.2%
BHP Billiton (NYSE: BHP  ) $5.8 billion 27.6%
Newmont Mining (NYSE: NEM