The shares of Freeport-McMoRan (NYSE:FCX), one of the world's largest copper and gold miners, rose almost 13% in January, according to data provided by S&P Global Market Intelligence. That's a pretty big reversal for the stock, which is down roughly 35% over the past year. However, you shouldn't read too much into this shift just yet.
The stock's big drop in 2018 is largely related to a downtrend in the price of copper. When Freeport announced earnings in late January, the pain was on clear display. Although the average realized price for the full year in 2018 was up, the fourth-quarter realized price was lower by 14% year over year. The price of copper has been going the wrong way and taking the stock with it.
To add insult to injury, the company's production costs were slightly lower for the full year but were notably higher year over year in the fourth quarter. This not-so-great backdrop helps to explain the stock's weak showing in 2018, particularly as the year drew to a close. The news on the gold front wasn't much better, with realized prices lower quarter over quarter in the final stanza of 2018 and for the full year.
Furthermore, the outlook management provided for 2019 wasn't exactly inspiring. CEO Richard Adkerson said in the company's earnings release, "Despite recent market uncertainty, we remain confident in the fundamentals and long-term outlook for copper." Earlier in 2018, he had described the copper market as a "paradox" and gone on to describe copper prices as "unusual" based on positive demand dynamics coupled with low copper prices. Both of those terms would remain accurate summaries of the market description he provided during the fourth-quarter call.
Meanwhile, Freeport has some big spending plans over the next year or two that are expected to keep its costs on the high side. The company didn't provide any market guidance at the start of 2019 that would suggest materially improving results, which only makes the January upturn that much more interesting: If neither earnings nor the company's outlook were the big driver, what was?
The answer is investor sentiment, which drove assets across the board -- notably including copper and gold -- higher. So investors ended 2018 on a risk-off note, but entered 2019 with a risk-on attitude. And, as you would expect from a company whose fortunes are tied to commodity prices, Freeport's stock advanced along with the metals it produces.
Although a jump in the prices of copper and gold at the start of 2019 is a good thing, investors should take the improvement, and the jump in Freeport-McMoRan's stock, with a grain of salt. The markets can be fickle. In fact, there remain a great many uncertainties in the world today that could quickly change investor sentiment about copper and Freeport. In the end, Freeport-McMoRan isn't a bad company. It has, in fact, vastly improved its business since a disastrous foray into oil drilling. But the recent rally is more likely noise than substance.