Shares of Freeport-McMoRan FCX continued their downward drift, slipping to a fresh 52-week low of $5.36 last Friday. The stock closed the day modestly higher at $5.41. The struggling miner saw its shares crash roughly 71% last year, battered by a slump in commodity prices. The stock is also down around 20% over a month.
What’s Weighing on Freeport?
Freeport, like other miners, is feeling the pinch of broad-based weakness in commodities. Fears that a slowdown in the Chinese economy would wane the country’s appetite for raw materials, from oil to metals, are weighing on commodities. The depressed oil and copper pricing environment remains a major headwind for the company.
Sluggishness in China (a major market for copper) is affecting copper markets, thereby hurting Freeport’s core copper mining business. Weak demand in China is weighing on copper prices. The country 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.
Copper prices plummeted to their lowest level in seven years last week. Soft Chinese demand, supply glut, apprehensions surrounding Europe and continued dollar strength are hurting the prices of this key industrial metal.
Moreover, the oil price rout has dealt a massive blow to Freeport, hurting its oil and gas business. Oil prices languished to a twelve-year low last Thursday as stock market turmoil in China sparked concerns about slowing demand in the country. The absence of production cuts by oil cartel OPEC coupled with a growing global supply glut and a stronger dollar are expected to continue to hurt 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.
Freeport’s board is currently undertaking a strategic review of its oil and gas business to assess alternatives designed to increase value to the company’s shareholders.
Freeport slipped to a loss in the third quarter of 2015 as sizable charges (of $3.7 billion), mostly related to its oil and gas properties, dented its bottom line. 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 Platinum Group Metals Ltd. PLG, Energy Fuels Inc. UUUU and Denison Mines Corp. DNN. While Platinum Group sports a Zacks Rank #1 (Strong Buy), both Energy Fuels and Denison Mines hold a Zacks Rank #2 (Buy).
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