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Stable Energy Prices in May Bode Well for Freeport-McMoRan

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Crude oil at $60 in May

Previously in this series, we looked at some indicators of the copper industry. In this part, we’ll take a look at Freeport-McMoRan (FCX), one of the top two copper producers. We’ll also analyze recent movements in crude oil prices.

On May 29, WTI (West Texas Intermediate) was trading at $60.30 per barrel. Freeport has significant investments in oil and gas assets, so Freeport investors should keep a close eye on crude oil prices.

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Crude oil prices stabilize

The above graph shows recent movements in WTI prices. Prices traded largely sideways in May, flirting around the $60 level. This was preceded by a 25% rise in April. Crude oil prices reached multi-year lows earlier in March but bounced back sharply after that.

Energy exploration companies (XOP) like ConocoPhillips (COP) and Suncor Energy (SU) benefit from the increase in crude oil prices. COP and SU form 4.36% and 2.33%, respectively, of the iShares North American Natural Resources ETF (IGE).

Higher energy prices boost Freeport’s earnings. Earlier this year, the company had to slash its dividend by more than 80% as both energy and copper prices tumbled.

IPO of energy business?

In its 1Q15 earnings conference call, Freeport highlighted that it might consider selling a minority stake in its energy business. It might come out with an IPO (initial public offering) of its oil and gas subsidiary later this year, subject to market conditions and regulatory approvals. Higher energy prices would help Freeport price the IPO at a better price.

Freeport gets more than 10% of its revenue from gold. It produces gold from its mine in Indonesia. In the next part, we’ll look at some of the recent trends in gold prices.

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