Freeport-McMoRan (FCX) closed at $9.80 on September 25, dipping below the psychologically crucial level of $10 for the second consecutive day. Freeport has lost more than 18% after touching $12.05 on September 17. The stock has been quite volatile over the last month.
Currently, Freeport-McMoRan forms 2.18% of the Materials Select Sector SPDR ETF (XLB). Investors looking at a direct commodity exposure can also consider the PowerShares DB Commodity Tracking ETF (DBC).
Stock price has been volatile
At the end of August, Freeport surged on news of activist investor Carl Icahn taking an 8.5% stake in the company, coupled with Freeport’s lower capital expenditure guidance. Freeport’s stock also received a boost from the uptrend in copper prices in the beginning of September.
However, the rally was short-lived and fizzled out shortly thereafter. Markets took a negative view of Freeport’s announcement of its fresh equity issuance of up to $1 billion. The company had already raised $1 billion in equity at its current depressed stock prices. Looking at Freeport’s current market marketization of ~$11 billion, its equity base could expand between 15%–20% by raising $2 billion of fresh equity. This would lead to lower earnings per share in the coming years.
Equity issuance looks like a necessary evil for the beleaguered company. Freeport has been struggling with its huge debt, and its total debt could have increased further in next two quarters if aggressive measures were not taken.
Along with the company-specific issues, macro factors have weighed heavily on Freeport-McMoRan. Copper prices and concerns over the Chinese economy has been among the major drivers for copper producers such as Freeport-McMoRan, Turquoise Hill Resources (TRQ), and Teck Resources (TCK).
In this series, we’ll take a look of the macro indicators that affect copper companies. Let’s begin by looking at the latest trend in copper prices.