Shares of Freeport-McMoRan (FCX 4.21%) have been on fire over the past couple of years, rocketing nearly 300% off its bottom from January of 2016. Rewind things a little further, however, and shares are down about 10% over the past three years. In fact, the stock price of the copper and gold miner has been all over the place in the past decade due in large part to commodity price volatility. That's just one of several reasons why investors shouldn't get greedy and load up on shares of Freeport-McMoRan.

As copper goes, so goes Freeport-McMoRan

The price of copper, like most commodities, can be quite volatile, especially if supply and demand gets out of whack. We've seen that firsthand over the past few years, with it selling for around $2 a pound in 2016 before rebounding up to a recent price of near $3 a pound this year. This fluctuation can have a significant impact on Freeport-McMoRan's cash flow given that it's how the company makes most of its money.

A jar of pennies surrounded by pennies.

Image source: Getty Images.

We see that impact in the company's guidance for 2018. Freeport-McMoRan forecasts that it will generate more than $5.8 billion in operating cash flow this year, assuming copper averages $3.15 per pound. However, copper has weakened since the year began, falling about 8% to around $3.05 per pound. That's significant for the company since just a $0.10 lower average price per pound for the year would impact cash flow by $360 million. In other words, if copper stays where it is, Freeport-McMoRan would only generate about $5.44 billion in operating cash flow in 2018. Meanwhile, if copper keeps sliding, Freeport-McMoRan's cash flow would follow it lower, likely taking its stock -- which has already declined more than 10% this year -- with it.

Working with governments is risky business

In addition to the volatility from copper prices, Freeport-McMoRan faces geopolitical risks in some countries where it operates. Those risks came to the forefront last year when the company had to rework an agreement with the government of Indonesia to continue running its crown jewel Grasberg mine.

After months of negotiation, the company finally reached a settlement with the government for long-term operating rights of Grasberg. However, it had to give up a lot in exchange, including agreeing to pare its stake in the mine's operating company from more than 90% to 51%. Because of that, the company will see a much smaller slice of that mine's profits in the future.

A burned piece of cash.

Image source: Getty Images.

Let's not forget the $20 billion mistake

If its exposure to commodity prices and geopolitical risks weren't enough, Freeport-McMoRan has hurt itself by making ill-timed acquisitions in the past. The worst was its bold bet on oil and gas in 2012, paying roughly $20 billion for two companies in a transformational transaction that it thought would turn it into the next BHP Billiton. That move, however, blew up in its face not more than two years later when oil prices started tumbling, incinerating roughly $17 billion of value in the process. The transactions also loaded the company with a mountain of debt, which it has spent the past few years trying to pay off.

Freeport-McMoRan, however, isn't the only mining company to make an ill-advised acquisition in recent years. BHP Billiton spent about $20 billion buying shale assets in the U.S. earlier this decade. However, the global mining giant is now looking to unload these properties, hoping to recoup at least $10 billion. Rio Tinto, meanwhile, made what has been called the worst mining deal ever, paying $38.1 billion for Canadian aluminum producer Alcan in 2007. Rio Tinto not only bought at the tippy top of the aluminum cycle but also paid a hefty premium after getting into a bidding war for the company. That transaction would weigh on Rio Tinto for years and hampered its ability to make deals after commodity prices collapsed during the financial crisis. While the management teams of mining companies seemed to have learned their lessons that these big deals don't pay off, there's always the risk Freeport-McMoRan could repeat its past mistake and make another value-destroying deal.

Don't overdose

As the largest publicly traded copper company, Freeport-McMoRan is one of the top options for investors seeking to profit from higher copper prices. However, given the volatility of copper prices, its exposure to geopolitical risks, and its history of incinerating value with acquisitions, investors shouldn't get greedy with this stock. Instead, they're better off keeping their exposure small just in case one of those issues comes back to bite the company and send shares plunging again.