It was just the other day that concerns were arising about thieves again making off with air conditioners, drain pipes, and telephone lines to capture the increasing scrap value of the copper the items contained.
Indeed, that scenario was reminiscent of a similar situation back in 2007. In the Florida town where I was living, a building that housed a large dermatology practice was skinned out of a couple of air conditioning units solely for the value of their copper innards. Now, reports are coming from the other side of the nation, with the Anchorage Daily News noting, "Dozens of electrical companies and small businesses statewide have been hit by copper thieves."
Copper purloining appears to be set off when the metal's average price approaches $4.00 a pound, as it did in 2008. However, it soon plunged to earth with most commodities, bottoming out by early 2009 below $1.50. But that wasn't the end of its wild fluctuations. Since then, the base metal has worked its way back to nearly $4.00, before retreating slightly.
As a result, the share price of copper producer Freeport-McMoRan Copper & Gold
Lest you think that the day of reckoning has arrived for the red metal, just last week Morgan Stanley forecast a copper-led rally in base metals, hoisting its 2011 price target by 5% to $3.60 and further boosting its 2012 expectation to $3.80. There are at least a couple of agreed-upon drivers for the heightened expectations.
First, as you'd expect, copper demand in China refuses to waver. In fact, one consulting firm argues that demand from the developing nation will nearly double by 2020, resulting in about half of global copper sales going to China. And second, 79 of the 81 new copper projects expected to begin within the next six years were shelved during the 2008 price declines. The results will almost certainly include worldwide demand that outstrips supply -- perhaps meaningfully -- in the years ahead.
As for Freeport itself, the company, which expanded its earnings by 27% last quarter, is involved in several capacity expansions, including the restart of its Chino mine in New Mexico. Beyond that, it has reached an amiable accord with the Democratic Republic of Congo regarding the operation of its big, new Tenke Fungurume mine there. In something of a departure from its core business, it has also invested recently in convertible preferred shares of McMoRan Exploration
All in all, I find few reasons to assume that Freeport won't maintain its strength for several years to come. With much of the world scratching for commodities, I'd strongly suggest that the well-managed, geographically diverse company with quality, long-lived assets deserves steady attention from Fools with an attraction to natural resources.
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