Deeper Dive into Freeport McMoRan
They are largest pure play base metal miner and could be a great way to take advantage of the possible increased need for base metals. The other companies with competitive advantages in the mining industry have good valuations also, but are more diversified into energy and ferrous metals. So OWI believes freeport could be a good way to participate if there is an increased demand for base metals.
A couple slides from Freeports most resent earnings release caught my eye.
There is a divergence of price and inventory levels. Inventory levels have actually dropped this year while prices have also. And according to Freeport the incentive level to produce is almost a dollar more per lb then current levels. If that is true, than inventories will drop further or prices will need to increase. This price drop is due to concerns about slowing global growth. Which could or couldn’t be the case, but if we take a longer view the demand landscape for copper and other base metals look attractive.
Not sure how accurate the above forecast will be, but the perception of the energy transition alone could drive up prices. If copper prices get back above $5, Freeport would generate $6B in free cash flow. Which is 8x the current market cap. If higher copper prices can sustain, we could see a decent return here.
