In a market climate where revenue, earnings, commodity prices and the share prices of gold and copper stocks are falling, one company is solidly bucking the trend…
Phoenix-based Freeport McMoRan Copper and Gold (FCX) is reporting higher revenue and earnings, and the stock is poised to extend the impressive run it started back in July.
So how is the company succeeding where so many others are struggling?
Success in a World of Failure
[ad#Google Adsense 336×280-IA]Once solely reliant on its massive global copper and gold operations, Freeport is now an oil producer, too.
That’s helped protect the company against the meltdown that pure-play commodity companies are suffering.
Case in point: Freeport just reported third-quarter earnings of $821 million.
Yes, that’s $3 million less than the same quarter last year.
But copper and gold prices were much higher then. (Gold, for example, was about 30% higher.)
In the meantime, most other resource companies, with the exception of royalty plays, have reported sharply lower earnings and massive write-downs on projects.
Freeport’s savvy diversification has helped it weather the storm…
Laugh if You Want… We’ll Just Make Money
In May and June, Freeport bought Plains Exploration and Production Company, and McMoRan Exploration – two companies that produce oil, natural gas and natural gas liquids.
The purchases didn’t come cheap. Freeport shelled out more than $18 billion to buy the two companies – deals that many onlookers scoffed at. But Freeport is having the last laugh now.
It now controls properties in the prolific shale regions of Haynesville and Eagle Ford, as well as offshore drilling operations in the Gulf of Mexico. And the company is already reaping the rewards.
Besides offsetting the shortfall from lower copper and gold prices, the company’s oil and gas exposure could deliver more profits in the future, too.
You see, we expect natural gas prices to move higher over the next three to five years – a trend that could see Freeport’s profits soar as a result.
In addition, Freeport expects to pay down a good chunk of the acquisition costs in three years.
Dollars and Sense
Now, for a company whose history is rooted in massive copper and gold projects, you might think that operating oil and gas subsidiaries would be totally foreign to Freeport. After all, its expertise lies in metals, not oil and gas.
But Freeport isn’t trying to transfer its skill set from one business to another. It’s merely diversifying and supplementing its existing operations with two companies that have proven histories of success.
And as a global producer with operations in Africa, Indonesia and even Siberia, Freeport is certainly no stranger to managing growth from diverse locations.
The Resource Model for the Future?
Freeport has recognized the need to diversify its asset base away from just metals and into energy-based commodities. It’s a move that could spell the beginning of a new type of company – a “hybrid” resource company looking for new ways to make money, not just mine metals and subject itself to the vagaries of one market.
Adding oil and gas to Freeport’s portfolio seemed like a gamble at the time. But it’s paying off in spades, as Freeport has managed to offset a big decline in its core commodities business and smooth out its earnings.
Maybe that reality is giving Freeport insiders the confidence to buy shares on the open market, while other commodity insiders sit on their hands.
And “the chase” continues,
Karim Rahemtulla
[ad#leeb-article]
Source: Oil & Energy Daily