The investment case for the copper miner is based on long-term demand and its ability to expand supply.
After being above $50 recently, copper, gold, and molybdenum miner Freeport McMoRan’s (FCX 1.27%) stock has dipped to about $46.60 at the time of writing. Frankly, this looks like a good buying opportunity in a stock with plenty of long-term potential upside. Here are four reasons why.
Valuation remains attractive
Read no further if you aren’t bullish or at least agnostic about the outlook for the price of copper — Freeport’s most important metal that it mines. The latter applies because, based on the current price of copper of about $4.30 per pound, Freeport McMoRan is an attractively priced stock.
Every quarterly results presentation, management lays out its projections for earnings before interest, taxation, depreciation, and amortization (EBITDA) based on the price of copper. Based on the latest forecast and the current price of about $4.30 per pound, Freeport McMoRan will generate about $12.2 billion in EBITDA in 2025/2026.
With a current enterprise value (EV) of about $71.6 billion (market cap plus net debt), the stock would trade on an EV/EBITDA multiple of slightly less than 5.9 times EBITDA in 2025/2026. As you can see below, that’s a relatively favorable valuation for the company.
FCX EV to EBITDA data by YCharts
Demand trends remain favorable
Copper is traditionally seen as an economically sensitive metal whose demand ebbs and flows with economic growth due to its widespread use across various industries. That’s still true, and the weakness in the global automotive and residential construction end markets in 2024 has negatively impacted demand.
However, increased demand coming from global secular megatrends such as the electrification of everything and clean energy transition mean investment in electrical infrastructure and AI data centers “more than offset weakness in traditional demand sectors in residential construction and autos” while “China’s demand for copper continues to grow despite a weak property sector” according to CEO Kathleen Quirk on the earnings call.
Indeed, the Chinese government’s announcement of stimulus measures bolstered the price of copper and Freeport’s share price in September.
Leaching initiative
A bullish outlook for copper doesn’t rely on a positive demand view; investors must also consider supply constraints — less supply usually means upward pressure on prices. Freeport stands well placed in this respect because it has the potential to increase supply while other miners might be more challenged.
Its best near-term potential lies in its leaching initiative to recover copper from existing tailings stockpiles (waste debris with some small amounts of copper remaining). The good news is it continues to make excellent progress with it. The 58 million metric tons recovered in the third quarter mean it produced 211 million metric tons over the last 12 months.
Management believes it will hit an annual rate of 300 million to 400 million metric tons during 2026 and then 800 million metric tons over time. Given that its target for copper production is 4.1 billion metric tons in 2024, the leaching initiative offers a significant opportunity to expand production.
Mining expansion projects
During the earnings call, management also discussed potential investments in brownfield projects to expand supply. It believes it can grow production at a mine in Bagdad, Arizona, to an incremental 200 million metric tons to 250 million metric tons over time, with a potential start-up in 2029.
Meanwhile, Freeport is carrying out pre-feasibility study work on an expansion project in Safford, Arizona, that could more than double its existing production of 300 million metric tons per annum (beginning in the next decade) in a resource that Quirk believes “could be something that will be with us for a very long time.”
In addition, there’s potential to add 750 million pounds of annual production in El Abra, Chile, with a start-up date of around 2033.
Image source: Getty Images.
A stock to buy?
Based on the current price of copper, the long-term demand environment, and Freeport’s potential to expand production in the near term through its leaching initiative and in the long term due to its potential brownfield expansion projects, Freeport is an ideal stock for copper bulls.
As such, a share price below $50 looks extremely attractive as an entry point.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.