Freeport-McMoRan Inc. (NYSE:FCX) and Alcoa Corporation (NYSE:AA) entered 2017 having made large changes to their businesses. As a result, both companies started off 2018 with stronger businesses and a brighter outlook. However, one of these metals companies still has some lingering baggage to deal with, and that gives the other stock the edge here.

Better businesses today

Before getting too deep into Freeport's and Alcoa's businesses, it's important to remember that Freeport is a copper and gold miner while Alcoa is an aluminum company. If you are looking for copper and gold exposure, don't buy Alcoa stock, and if you want aluminum exposure, don't buy Freeport stock. With that out of the way, it's time to look at the solid improvements each company made in 2017.

A person pouring liquid aluminum into ingot molds

Image source: Getty Images

The big change for Alcoa was its separation from specialty parts maker Arconic (NYSE:HWM) in late 2016. Effectively, 2017 was the aluminum company's first year as a stand-alone entity focused almost exclusively on the commodity side of the aluminum value chain. And it was a good year.

Alcoa's top line advanced 25% in 2017, driven largely by higher aluminum and alumina prices. Adjusted EBITDA more than doubled, going from roughly $1.1 billion in 2016 to $2.35 billion last year. Cash on the balance sheet increased from $853 million to $1.35 billion even while long-term debt fell slightly from $1.42 billion to $1.39 billion. The aluminum giant was able to cut costs, too, taking selling, general, and administrative expenses down 20% through the year.   

Freeport-McMoRan's big change was effectively jettisoning the oil business it bought just before energy prices started to plummet in mid-2014. That ill-timed acquisition saddled the company with heavy debts and a struggling new business. Having refocused on its copper and gold mining assets, 2017 was something of a fresh start for Freeport. And it got off on the right foot performance-wise.

FCX Chart

FCX data by YCharts.

The miner's top line advanced 10% in 2017, helped along by rising copper and gold prices. Net income from continuing operations went from a loss of $2.96 per share in 2016 to a gain of $1.21 in 2017. The improvement, however, was really on the balance sheet, where Freeport was able to reduce its net debt by 18% last year to roughly $13.1 billion. That number was roughly $20 billion after the debt-funded oil acquisition in 2014. Not a bad showing at all.   

Some issues remain

Looking forward, the performances of Alcoa and Freeport are tied to their respective commodity markets. If you are researching either company, you have to keep that in mind, because falling commodity prices can be a major headwind for both stocks. However, Freeport has one additional problem that deserves very close attention: One of its largest assets, the Grasberg Mine in Indonesia, is in a state of flux.

Although it's a complex issue, the Indonesian government effectively wants to get more financial benefit from the Grasberg Mine than it has been. Since achieving that end requires that Freeport give up its controlling stake in the mine, which accounts for around 30% of its copper reserves and virtually all of its gold reserves, Freeport isn't too pleased with the idea. The two sides have been in discussions for over a year on an equitable outcome. Although a broad framework was reached in the middle of 2017, hammering out the details has proven difficult. 

An overview of Freeport's largest assets, showing that Grasberg makes up roughly 30% of its copper reserves and virtually all of its gold reserves

Grasberg is a giant asset in Freeport's portfolio. Image source: Freeport-McMoRan Inc.

Until the Grasberg issue is resolved, there's a huge amount of uncertainty surrounding Freeport's business. Alcoa doesn't face a similar headwind. In fact, Alcoa is looking at generally rising long-term demand for the light and strong metal it supplies to the world. Although I wouldn't rush in to buy either name right now after their impressive 2017 runs, I would err on the side of caution and pick Alcoa if I were in a buying mood with this pair. I wouldn't want to worry about the very material Grasberg issue.

Avoiding an extra risk

Financial results at Alcoa and Freeport McMoRan will depend on the prices of the commodities they sell, and that will likely have a similar impact on their stocks. However, looking at the position each is in today, Freeport is dealing with a notable problem in Indonesia that could prove a huge headwind to its financial results if negotiations don't go well. Alcoa simply doesn't have that same kind of uncertainty hanging over it. Both companies have performed relatively well over the last year or so, but most investors would be better off staying away from the risks posed by the uncertainty at one of Freeport McMoRan's biggest mines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.