Significantly Decreased by 22%, This Outstanding Mining Stock Offers Investment Opportunities for 2025 and Beyond
Freeport-McMoRan's stock is taking an unexpected dip, even as copper prices soar, leaving some investors scratching their heads. Here's why this copper mining giant is facing a downturn, and why you might want to consider it as a value buy.
Why the Dip?
- Indonesian Smelter Fire: A mid-October fire at a new smelter in Indonesia caused some damage, impacting Freeport's operations somewhat.
- Lowered 2025 Production Estimates: In the fourth-quarter earnings call, management reduced their expectations for copper production in 2025 from 4.2 billion pounds to 4 billion pounds due to two major mill repairs in Indonesia. However, it's important to note that the guidance for 4.3 billion pounds of copper production in 2026 remains unchanged.
- Tariff Fears: The potential impact of trade tariffs on Freeport's business has also caused some uncertainty. Management, though, reassured investors that U.S.-produced copper is sold in the U.S., and any tariff-related premium would work in Freeport's favor.
A Brighter Long-Term Picture
Despite these near-term challenges, there are reasons to remain optimistic about Freeport's future.
- Leaching Initiatives: Freeport's most exciting and cost-effective opportunity lies in its leaching initiative technology. By aiming to recover 800 million pounds per annum from 39 billion pounds of material previously considered as waste, Freeport can expand profit margins. The initiative is underway, with Freeport already hitting a run rate of 214 million pounds per annum in 2025.
- Cost Reduction Measures: Management has cost reduction measures in place, hoping to improve profit margins and offset lower grades. For instance, it's deploying autonomous trucks in a mine in Arizona and investing in automation and new technology in other mines.
- Expansion Projects: Freeport has several expansion projects in the pipeline, such as a potential 200-million-pound to 250-million-pound opportunity in Bagdad, Arizona, and a 300-million-pound to 400-million-pound expansion opportunity in a mine in Lone Star, Arizona, starting in the 2030s.
Is It a Value Buy?
Given these factors, the recent market sell-off may be overdone. Freeport continues to report solid progress on its leaching initiative, and its long-term risks and opportunities remain largely unchanged. Moreover, the price of copper is holding up well. Whether or not Freeport is a value buy ultimately depends on your risk tolerance and investment strategy, but the current situation could be well worth considering.
[1]: BofA lowered Freeport-McMoRan's price target to $56 from $60, reflecting decreased 2025 copper sales guidance by 5% to 4.0B pounds and a 10% decrease in 2025 EBITDA and a 17% decrease in EPS estimates to $10.0B and $1.44, respectively.
[2]: The company is currently dealing with higher contractor costs and pushing back against price increases from vendors, which may affect its cost structure.
[3]: Freeport's stock traded lower in pre-market trading despite beating EPS expectations and reporting a revenue miss in Q3 2024, indicating broader market cautiousness towards the mining sector.
- Investors might want to consider investing in Freeport-McMoRan despite the current dip, as the company has cost reduction measures in place and promising expansion projects, such as the potential 200-250 million pound opportunity in Bagdad, Arizona, which could boost its profit margins in the long term.
- Despite facing challenges such as the Indonesian smelter fire and potential trade tariffs, managing overall finance effectively could be crucial for Freeport-McMoRan to recover and grow, making it an attractive opportunity for those with a higher risk tolerance in the financing and investing sphere.
