What happened
Shares of Freeport-McMoRan (FCX 0.83%) have rallied more than 15% over the past five trading days, according to data provided by S&P Global Market Intelligence. The primary factor driving the mining company's stock is higher copper prices.
So what
Copper prices have surged over the past week, driven by ultra-low inventory levels. There are only enough copper stockpiles to last about three days, a historically low inventory level for the metal. That has helped push the price of copper up to its highest level since October.
Image source: Getty Images.
Those higher prices will benefit Freeport-McMoRan, one of the world's largest copper producers. The company rode higher copper prices and production in 2021. They helped drive a 146% increase in its operating cash flows. With copper prices back at their 2021 highs, and Freeport-McMoRan's output expected to increase further in 2022, it could generate even higher cash flows this year.
In addition to higher copper prices, Freeport-McMoRan is also benefiting from the uptick in gold prices over the past week. Gold is up by about 2% to $1,835 an ounce, driven by continued inflation fears. That's above the $1,808 an ounce Freeport-McMoRan realized for gold sold during the fourth quarter.
Higher copper and gold prices will pay immediate dividends for shareholders. The company launched a performance-based shareholder payout framework this year. It's planning to return up to 50% of its cash flow to investors via share repurchases and variable dividends. As copper and gold prices rise, they'll boost Freeport-McMoRan's cash flow, giving it more money to return to shareholders.
Now what
The copper market is tight right now, which is pushing up prices. That could continue in the near term. However, analysts believe that some of this inventory pressure will fade as Chinese producers increase production later this year. But copper demand should grow over the long term because it's essential for a greener future since it's an important component for electric vehicles and solar panels. Given all this, investors should expect more volatility ahead for copper prices and Freeport-McMoRan's stock.
