Freeport-McMoRan shares again provided an opportunity to make money on their high volatility.
The company reported strong production results and financials for 2Q and 6M 2021.
We believe that the fundamentals remain valid. We therefore maintain our target price on FCX shares and upgrade our recommendation to “Buy”.
We reiterate our June 2022 target price of $46.0 on FCX stock and raise our recommendation on the stock from a “Hold” to a “Buy”. In the last review, we saw limited upside potential and suggested the possibility of a correction. This correction took place and now the upside to the current share price is 26.8%.
Freeport-McMoRan is one of the world’s largest copper producers, ranking fourth by production with a market share of about 5%. In addition to copper, the company mines molybdenum and gold. Its mines are located in the United States, South America, and Indonesia.
Copper prices have hit multi-year records this year and are not far off them. Copper is the most sought-after metal in the energy transition and demand has long-term growth potential. FCX has a portfolio of quality assets with significant proven copper reserves.
The main growth driver for FCX stock over the medium term is the recovery of production volumes as the conversion from open-pit to open-pit mining at Grasberg mines in Indonesia is completed. FCX in 1H 2021 increased copper production by 21.7% and gold production by 73.5% by 1H 2020.
FCX is showing strong financial results in 2021. In 1H 2021, the company’s revenues were up 81% YoY. Shareholder earnings were $1.21 per share compared to a loss of $0.30 per share a year earlier.
The company adopted a new financial policy in February 2021. After a break in 2020, the company reinstated a dividend of $0.30 per share per year beginning in 2021. The dividend is paid quarterly at $0.075 per share.
Going forward, FCX intends to return at least 50 percent of its free cash flow to shareholders in the form of dividends and buybacks once its net debt falls below $4 billion. As of June 30, 2021, the company’s net debt had fallen to $3.4 billion.
We see the key risks for Freeport-McMoRan as a possible correction in industrial metals prices in case of QE rollback, as well as possible changes in regulatory requirements of local authorities in mining regions.
