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Freeport-McMoRan: Should You Give Up on It after a 20% Rally?

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Freeport-McMoRan’s strong run

Freeport-McMoRan (FCX) has been having a strong run since May. In April, it had a selling spree, especially after its first-quarter earnings call. The company not only missed its earnings estimate but also lowered its 2018 production guidance while raising its unit cash cost guidance for the year.

Southern Copper (SCCO) also lowered its 2018 production guidance, and BHP Billiton (BHP) narrowed its fiscal 2018 copper production guidance. Read Copper Miners’ First-Quarter Report Card: Hits and Misses for an analysis of copper miners’ performances.

First-quarter earnings

The key driver behind the 14.5% fall in Freeport stock after its first-quarter earnings release was management’s commentary on its Grasberg operations. The company pointed to Indonesia’s new environmental regulations, which have further muddied Freeport’s tussle with the Indonesian government. Rio Tinto (RIO) (TRQ), Freeport’s partner at the mine, is negotiating an exit with the Indonesian government.

Series overview

Last month, in our series Freeport-McMoRan: Is the Worst Over? we noted that the stock’s valuation was starting to look attractive. Freeport has risen 20% since then. Now, the dilemma is whether you should give up on Freeport after such a spectacular rally or believe there could be more upside. In this series, we’ll explore Freeport’s opportunities and threats that could help us understand what lies ahead for the stock in the coming months.

Let’s start by analyzing what’s been driving the stock over the last month.

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