Why This Company May Be the Next Natural Resources Powerhousehttp://www.fool.com/investing/general/2013/10/30/why-this-may-be-the-next-natural-resources-powerho.aspx Bob Ciura
October 30, 2013
There's a shakeup occurring in the metals and mining space, which investors would be wise to consider going forward. Freeport-McMoRan Copper & Gold (NYSE: FCX) intends to not just enter the U.S. oil and gas space, but to do so in a meaningful way with high-quality assets that, in the company's estimation, will position it as an industry leader.
Freeport classifies itself as a premier natural resource company, and the company's strategic initiatives undertaken in this regard lead me to believe this is an attainable objective. In two separate transactions totaling $19 billion, Freeport acquired Plains Exploration and McMoRan Exploration, and the company now believes it has the ability to become a diversified resources powerhouse. Here's what fuels such management optimism.
A natural resource conglomerate in the making
Thankfully for investors, Freeport is not undertaking its empire-building plans at the expense of the balance sheet. Although it's allocated billions to its oil and gas pursuits, the company maintains tight oversight over its financial position. The company's net debt position stands at $17.2 billion, which it plans to reduce to $12 billion over the next three years. In addition, Freeport will target opportunities going forward to refinance debt related to its acquisitions, to further bolster its financial condition.
Not just a pure-play minerals company
In addition, production woes provide a further headwind for Newmont. Newmont's preliminary projections are for third-quarter copper production to fall 3% year over year, driven by weakness in one of its key geographic regions, South America, where total production is expected to drop by 24% versus the same quarter last year. This was the major factor behind the company's decisions to slash its dividend. Newmont just announced its fourth-quarter shareholder payout will be 42% lower year over year.
Southern Copper, meanwhile, is keeping production growth intact, but is nonetheless hurting from poor metals pricing. Sales volumes of zinc, molybdenum, and silver are all up through the first nine months of the year, but total revenue is down 12% versus the same period last year. Moreover, consider that Southern Copper's capital expenditures through the first three quarters of the year rose a whop