While mining companies have been conservative when it comes to capital expenditures, copper has been a different story. Diversified miners such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE) have looked open to organic as well as inorganic growth opportunities in copper.
As we noted in the previous article, Freeport-McMoRan (FCX) has indicated that the company is open to all options—including an outright sale of the company. China also sees copper as a strategic metal, as the country lacks quality copper assets. As noted by Freeport-McMoRan CEO Richard Adkerson, it wouldn’t be feasible for a Chinese company to buy Freeport for political reasons.
Despite the rout in metal prices, diversified miners are still flush with cash thanks to strong iron ore prices. Companies are using cash for buybacks instead of pursuing growth. These miners’ flight to safety is understandable, as previous mega investments have added to the overcapacity problem.
Given mining companies’ appetite for copper assets amid the looming supply deficit predicted by most analysts, Freeport-McMoRan could be an interesting choice. With respect to copper assets, it’s been a sellers’ market even during the 2015–2016 cyclical low.
Although Freeport-McMoRan’s record of buying and selling assets has been imperfect, it bought energy assets during peak energy prices and exited them when energy prices bottomed out.
In the final article of this series, we’ll look at the recent divergence between Freeport-McMoRan and copper prices (XME).