We have retained our Neutral recommendation on
). While we are encouraged by the attractive opportunities
arising from its recent acquisitions and expansion initiatives,
we maintain a cautious stance factoring in weak pricing and high
Freeport reported mixed second-quarter 2013 results on July 23
with adjusted earnings topping the Zacks Consensus Estimate while
sales missing the same. Profit slid year over year on lower gold
and copper pricing. Gold sales fell due to temporary suspension
of operations in Indonesia.
Freeport, which is among the prominent players in the mining
industry along with
Newmont Mining Corporation
), is conducting explorations close to its existing mines with a
goal to boost reserves, which will facilitate the development of
additional future production capacity. The company's strategy is
to pare debt and maintain a strong balance sheet, while investing
in financially attractive projects and providing returns to
Freeport made a major stride to venture into the U.S. energy
space with the acqusitions of Plains Exploration and McMoRan
Exploration. The buyouts brings in new opportunities for
Freeport. The combined entity is expected to emerge as a leading
natural resource conglomerate in the U.S., leveraging Freeport's
industry-leading mineral assets and the oil and gas resources of
Plains and McMoRan.
Freeport continues to progress with its expansion initiatives
in Latin America. We are optimistic about its African operations
considering the potential at the Tenke Fungurume minerals
district in Democratic Republic of Congo.
However, demand for copper still remains somewhat weak.
Freeport's copper business has been hit by the sluggish global
economy. Demand from key end markets, including construction
materials and electronics, remain weak due to the overall
We are also cautious about the uncertainties surrounding the
Grasberg mine. Freeport suspended operations at the mine in May
2013 after the collapse of a tunnel that took 28 lives. While the
Grasberg mine has resumed operation and is currently operating at
full capacity, sales volumes for 2013 are now expected to be
lower than what expected earlier given the impact of the
suspension, timing of access to high ore grades which is not
expected before 2014.
Moreover, higher production costs and weak pricing remain
concerns for Freeport as these may continue to weigh on its
Other Stocks to Consider
Other companies in the mining industry with favorable Zacks
NovaGold Resources Inc.
Pretium Resources Inc.
). Both retain a Zacks Rank #2 (Buy).
FREEPT MC COP-B (FCX): Free Stock Analysis
NEWMONT MINING (NEM): Free Stock Analysis
NOVAGOLD RSRCS (NG): Free Stock Analysis
PRETIUM RES INC (PVG): Free Stock Analysis
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