The shares of copper and gold miner Freeport-McMoRan Inc. (NYSE: FCX) rose in dramatic fashion as 2017 drew to a close, advancing 36% in December. That gain accounted for almost all of the miner's full-year gain of nearly 44%. In fact, if it weren't for the last 30 or so days of the year, Freeport's annual gain last year would have been in the mid-single digits.
The interesting thing about Freeport's huge December gain was that it had virtually nothing to do with the company's fundamentals. And a lot of good things have been going on. For example, the miner has pretty much extracted itself from a disastrous foray into the oil business and materially trimmed the debt overhang left over from that, in hindsight, an ill-advised move. To put a number on that, long-term debt was reduced by a sizable 15% through the first nine months of the year.
That said, Freeport was still dealing with troubles elsewhere in its business in 2017. At the start of the year a major disagreement with Indonesia over Freeport's ownership of the massive Grasberg copper and gold mine broke into the headlines. There were hints of a resolution in August, when the two sides created a broad framework under which they would work to resolve the issue. But nothing concrete was arrived at by the end of the year, despite a late-year news report from Bloomberg hinting that an agreement was close at hand.
With all of that as a backdrop, the real driver of Freeport's dramatic December stock price advance was really a swift and dramatic rise in the price of copper. The move lasted through most of December, clearly rekindling investor interest in Freeport, one of the world's largest copper miners. Expectations for increased demand out of China appears to be the main reason behind the market's optimistic view of the metal.
December's impressive gain is an excellent reminder that miners like Freeport can experience swift price moves along with the commodities they produce. But those moves can cut both ways, with commodity price declines leading to falling share prices. The fundamentals behind a company often don't seem to matter when commodity prices are making big moves.
When it comes to Freeport, however, investors need to remember that the company has made good progress recovering from a notable investment mistake, but that it still has to deal with material uncertainty surrounding one of its largest mines. If you look at the business behind the stock, Freeport really isn't an appropriate investment for conservative investors at this point.
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