Rising Metal Prices Lift Freeport

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Freeport McMoran Copper's ( FCX ) performance for the first quarter of 2011 showed improved earnings across all divisions, primarily due to steadily increasing prices of the company's principal commodities - copper, gold and molybdenum. Freeport has mining and smelting operations in North and South America, Indonesia and Africa, and operates the Grasberg mine located at Papua, Indonesia - the world's largest copper and gold mine in terms of reserves. Freeport competes with other miners such as Southern Copper (NYSE:PCU), Codelco and Newmont Mining ( NEM ).

Our $59.41 base price estimate for Freeport's stock is at a roughly 15% premium to market price.

Results at a Glance

Freeport reported total revenues in excess of $5.7 billion for the most recent quarter. This is 31% higher than the $4.4 billion in revenues it generated during the same quarter a year ago. Net income for the quarter was $1.5 billion, representing a 67% jump from the $897 million recorded in the first quarter of 2010.

The company sold 926 million pounds of copper, 480 thousand ounces of gold and 20 million pounds of molybdenum in the quarter, similar to the sales figure for Q1 2010. However, the average realized price for each of the metals has risen significantly, explaining the leap in total revenues and net income figures. While the average realized price per pound of copper increased to $4.31 from $3.42, molybdenum fetched $18.1 per pound compared to $15.1 a year ago. Gold prices clearly gave the company a leg-up, rising from $1,110 per ounce in Q1 2010 to $1,399 per ounce in Q1 2011.

The Outlook

Freeport has been spending a lot to improve its production capacity and has been on the look-out for new projects. The company has set aside almost $2.5 billion for capital expenditures in 2011, with $1.3 billion being for major projects to be undertaken this year.

With the increasing demand for copper and gold globally elevating the prices of these metals, the company should continue to generate growing revenues even if it sticks to its current production levels. Copper contributes the most to the company's revenue figures, something we described in detail in our article titled ' Freeport Strikes Gold with its Copper Mining Operations '.

But the company has been facing difficulties in the recent past with lower quality copper ore, resulting in reduced production levels for the company. We discussed the impact of this situation in our article titled ' Freeport Plagued by Lower Copper Ore Quality '. The company will need to emphasize its production levels in order to grab a larger share of the growing metals market.

See our full analysis for Freeport McMoran stock here



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: FCX , NEM

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