Attractive Valuation Metrics
Investors who are optimistic or at least neutral about copper prices should pay attention to Freeport-McMoRan, which derives a substantial portion of its revenues from copper mining. With current copper prices hovering around $4.30 per pound, Freeport is considered attractively priced. Based on its latest projections, the company anticipates generating approximately $12.2 billion in EBITDA by 2025/2026, assuming copper prices remain steady.
Given its current enterprise value (EV) of about $71.6 billion—factoring in market cap and net debt—Freeport trades at a favorable EV/EBITDA multiple of around 5.9 for 2025/2026. This valuation offers potential upside for investors looking for growth in the copper sector.
Favorable Demand Trends
Copper is often seen as an economically sensitive metal, with demand fluctuating based on industrial usage. Although a slowdown in global automotive and residential construction markets in 2024 has affected demand, the long-term outlook remains bright. Trends towards electrification and a clean energy transition indicate that investment in electrical infrastructure and AI data centers will surpass traditional demand declines from residential construction and automotive sectors.
CEO Kathleen Quirk noted that demand for copper in China continues to rise despite weaknesses in the property sector, largely due to government stimulus measures aimed at bolstering economic activity. This resilience is essential for Freeport-McMoRan’s growth trajectory.
Leaching Initiatives Driving Supply Growth
Investors should also consider supply constraints in the copper market, as lower supply typically creates upward pressure on prices. Freeport-McMoRan is uniquely positioned to enhance its supply capacity, particularly through its innovative leaching initiatives that recover copper from tailings—waste material containing small amounts of copper.
The company reported a recovery of 58 million metric tons in the third quarter, contributing to a total production of 211 million metric tons over the past year. Management forecasts annual recovery rates could reach between 300 million and 400 million metric tons by 2026, with long-term projections suggesting a target of 800 million metric tons. This capability is critical as global copper production is expected to be 4.1 billion metric tons in 2024.
Expansion Projects on the Horizon
During recent earnings calls, Freeport’s management has discussed potential investments in brownfield projects to increase supply. They are optimistic about expanding production at the Baghdad, Arizona, mine, aiming to increase output to between 200 million and 250 million metric tons by 2029.
Additionally, Freeport is conducting pre-feasibility studies for an expansion project in Safford, Arizona, which could more than double its existing annual production capacity of 300 million metric tons in the early part of the next decade. They also foresee adding 750 million pounds of annual production at El Abra, Chile, with a targeted startup around 2033.
A Stock Worth Watching
Given the current copper pricing, the favorable long-term demand environment, and Freeport’s strategic initiatives to enhance production through leaching and expansion projects, the stock presents an attractive entry point for investors interested in the copper market. With shares trading below $50, Freeport-McMoRan stands out as a compelling option for those bullish on copper’s future.
