It didn't exactly fit the old saw about the minnow swallowing the whale, but Freeport McMoRan's (NYSE:FCX) acquisition this year of its larger rival Phelps Dodge clearly allowed the former company to bulk up in a hurry. On Wednesday, Freeport reported the results of its first full quarter as a combined company, and my, how the numbers have grown!
Net income for the company rose to $1.1 billion, or $2.62 a share, vs. $367 million, or $1.74 a share, in the June 2006 quarter. That, for those of you who'd rather not do the math, is right at a 200% increase on the net income line. Revenues rose 306% to $5.81 billion, compared to $1.43 billion last year.
Before acquiring Phelps Dodge in March, Freeport's biggest asset was easily its large Grasberg copper facility in Indonesia. As a combined company, it now operates Phelps' former copper and molybdenum mines in the United States and Africa. In total, those facilities yielded 1 billion pounds of copper, 913,000 ounces of gold, and 15 million pounds of molybdenum in the quarter. While gold prices were 7% higher year over year, copper prices were about flat at $3.33 a pound.
The key to Freeport's success lies in global copper demand and, hence, the prices it realizes for the metal. While those prices have remained comfortably above $3 for the past several months, that level is about three times the norm of a decade ago. But despite softness in the U.S. housing and automobile markets -- the two biggest domestic users of the metal -- increasing demand in China and other developing nations has more than offset whatever demand falloff may have occurred in the U.S.
The mining and metals industry has been a hotbed of mergers and merger speculation of late. In addition to the Freeport-Phelps combination, aluminum producer Alcoa (NYSE:AA) recently made an unfriendly offer for its Canadian rival Alcan (NYSE:AL), only to be shunted aside by a far higher offer from Anglo-Australian mining giant Rio Tinto (NYSE:RTP). But there continues to be speculation that BHP Billiton (NYSE:BHP), an even larger Melbourne-based mining company, will enter the acquisition fray by itself acquiring Alcoa or, yes, Freeport.
So Freeport McMoRan clearly represents a solid new combination operating in a continuously active and interesting industry. And despite its shares having increased about 58% in value this year, I'm convinced that the company warrants ongoing Foolish attention.
For related Foolishness:
- Freeport McMoRan: Solid Environmental Citizen
- Investing in Your Backyard: Phoenix
- Her Name Is Rio and She Dances With Alcan
Fool contributor David Lee Smith does own shares in BHP Billiton, but not in the other companies mentioned. He welcomes your communiques. The Motley Fool has a disclosure policy.
