Shares of Freeport-McMoRan FCX continue their downward spiral, sinking to a fresh 52-week low of $7.19 yesterday. The stock closed the day bit higher at $7.23. The struggling miner has seen its shares decimate roughly 67% this year, hammered by a meltdown in commodity prices. The stock is also down around 33% over a month.
What’s Pulling Freeport Down?
Freeport’s shares got beaten up by a slump in oil and copper prices yesterday. Oil prices sunk to near seven-year lows on Dec 7 after oil cartel OPEC decided to keep production at current levels in its latest meeting in Vienna last Friday despite a growing supply glut. Copper prices also slipped yesterday, pulled down by strengthening of the U.S. dollar against other currencies and concerns about weaker demand for the metal.
Freeport, like other miners, is reeling under the effects of commodity rout. Commodities have been battered this year by concerns that a slowdown in the Chinese economy would wane the country’s appetite for raw materials, from oil to metals.
Sluggishness in China (a major market for copper) and difficult market conditions in Europe are affecting copper markets, thereby hurting Freeport’s core copper mining business. The depressed copper and gold pricing environment also remains a major headwind for the company.
Copper prices, which plummeted to their lowest level in six years last month, are down roughly 28% this year on soft Chinese demand, supply glut, apprehensions surrounding Europe and continued dollar strength. Weak demand in China is weighing on copper prices. The world’s second-largest economy holds the largest share by far of global copper consumption (roughly 46%), and also has a significant share in the total production of pure copper.
Gold prices are also down roughly 10% this year. Uncertainty surrounding a Federal Reserve interest rate hike and a stronger dollar have kept the yellow metal under extreme pressure.
Adding to the pain is the slump in oil prices which is hurting Freeport’s oil and gas business. Oil prices have been under significant pressure on surging crude oil production in an already oversupplied market and a stronger dollar. The absence of a production cut by oil cartel OPEC coupled with booming U.S. production have led to the oversupply, thus hurting oil prices.
Freeport, in 2012, made a major stride to venture into the U.S. energy space by snapping up Plains Exploration & Production Company and McMoRan Exploration Co. for $19 billion, including $10 billion of assumed debt. The move represented part of the company’s strategy to diversify away from its bread-and-butter copper mining business. However, at the time, crude oil prices were more than $90 a barrel. The oil price rout has dealt a massive blow to Freeport.
Freeport’s board is undertaking a strategic review of its oil and gas business to assess alternatives designed to increase value to the company’s shareholders. One alternative appears to be public offering of a minority interest in its energy operations, or a full spin off.
Freeport swung to a loss in the third quarter of 2015, hurt by hefty charges of $3.7 billion mostly related to its oil and gas properties. The company may see further impairment charges related to its oil and gas business, thereby affecting its profitability in the future reporting periods.
Nevertheless, Freeport is taking aggressive actions to manage costs and capital expenditures amid a difficult pricing backdrop in a bid to strengthen its balance sheet.
Freeport currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked companies in the mining space include Coeur Mining, Inc. CDE, Nevsun Resources Ltd. NSU and Newmont Mining Corporation NEM, all sporting a Zacks Rank #2 (Buy).
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