Freeport-McMoRan Copper & Gold (FCX) consistently beats consensus EPS estimates and is poised to grow copper and metal sales in the double digits from 2012 levels and declining costs due to enhanced recovery capabilities due to higher grade, says Garrett S. Nelson, Vice President at BB&T Capital Markets.
“Freeport is unique in possessing one of the best volume growth profiles in the industry. This year, they expect to increase copper sales by 18% and gold sales by nearly 40% over 2012 levels, and they’ll grow volumes even further in 2014 largely due to the fact they’re moving into an area of the pit at their cash cow Grasberg copper and gold mine in Indonesia, where the ore grades are significantly higher,” Nelson said.
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FCX announced its plans to acquire Plains Exploration and Production (PXP) and McMoRan Exploration (MMR) in early December, leading to some criticism of the mining company. Nelson says, however, the miner has a track record of beating consensus EPS estimates for 15 of the last 16 quarters, and he expects the dilution of these acquisitions to be relatively modest.
“The acquisitions and various organic growth projects on the copper side should help mitigate the various labor, geopolitical, and asset and commodity concentration risks for the company, particularly at Grasberg, although it was difficult for some shareholders to take that longer-term view when they announced the acquisitions. The stock actually declined 16% the day Freeport announced that, and a number of analysts downgraded the stock. But we argued that the selloff was an overreaction and stuck with our ‘buy’ rating. As it turns out, the stock has rebounded since, and that day marked its low point,” Nelson said.
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