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What Could Sustain Freeport’s Rally?

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Freeport’s rally

Freeport-McMoRan (FCX), the leading US-based copper miner, has seen a sharp rally over the last two years. In 1Q16 there were concerns about the company’s ability to survive amid falling commodity prices. The company’s massive debt pile that it accumulated after its ill-timed energy foray didn’t help matters either.

However, things have changed dramatically for Freeport over the last two years. Copper is currently hovering near the $7,000 per metric ton level. To put this in context, copper fell below $4,500 per metric ton in 1Q16. Copper miners including Southern Copper (SCCO), Antofagasta (ANTO), and Glencore (GLEN-L) have followed copper higher.

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Higher commodity prices coupled with asset sales and an equity boost have helped Freeport lower its debt levels. Freeport’s net debt fell to $8.6 billion on December 31, 2017. Freeport has cut net debt levels in half from the $20 billion net debt burden that it had in 2015. Net debt is total debt minus cash and cash equivalents.

Series overview

Meanwhile, after gaining 95% and 44% in 2016 and 2017, respectively, Freeport is having a tepid 2018. Based on March 19 closing prices, the stock has lost 4.8% year-to-date. First Quantum Minerals (FM) is up 16.5% over the period. In this series, we’ll explore what could lead the next leg of the rally for Freeport after higher commodity prices and deleveraging initiatives boosted its fortunes over the last couple of years. We’ll also look at the company’s short-term and long-term drivers.

We’ll begin by looking at the recent trend in copper prices in the next article.

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