On Oct 31, we reaffirmed our Neutral recommendation on
). While we are impressed by attractive opportunities arising
from its recent acquisitions and expansion initiatives, we remain
on the sidelines factoring in weak pricing and high
Freeport's revenues and adjusted earnings for third-quarter
2013, reported on Oct 22, topped Zacks Consensus Estimates.
Profit, however, fell year over year on lower gold and copper
pricing. The company's acquisition of oil and gas operations
boosted sales in the quarter. Freeport saw higher copper and gold
sales in the reported quarter.
Freeport, a Zacks Rank #3 (Hold) stock, 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 acquisitions of Plains Exploration and McMoRan
Exploration. The buyouts ushered in new opportunities for the
company. 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, we are concerned about higher production costs and
weak pricing as these may continue to weigh on Freeport's bottom
line. Consolidated unit net cash costs for copper mines are
expected to rise year over year in 2013, mostly due to an
expected double-digit increase across North American and
Indonesian operations. The uncertain copper pricing environment
represents another concern.
Moreover, the company's copper business remains affected by
the sluggish global economy and supply related issues. Demand
from key end markets, including construction materials and
electronics, still remain somewhat soft due to the overall
While Freeport's Grasberg mine in Indonesia has resumed
operation and is currently operating at full capacity, sales
volumes for 2013 are expected to be lower than what expected
earlier given the impact of the suspension of operations
following the collapse of a tunnel. Uncertainties surrounding the
mine may weigh on the stock.
Other Stocks to Consider
Other companies in the mining industry with favorable Zacks
Pretium Resources Inc.
Allied Nevada Gold Corp.
). While Franco-Nevada and Pretium carry a Zacks Rank #1 (Strong
Buy), Allied Nevada retain a Zacks Rank #2 (Buy).
ALLIED NEV GOLD (ANV): Free Stock Analysis
FREEPT MC COP-B (FCX): Free Stock Analysis
FRANCO NV CP (FNV): Free Stock Analysis
PRETIUM RES INC (PVG): Free Stock Analysis
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