Freeport-McMoRan Inc. (FCX, Financial) jumped 4% to $16.90 per share on Wednesday on the heels of the announcement of a quarterly cash dividend.
On Aug. 1, the mining company is expected to pay 5 cents per ordinary share to the holders of the stock. In order to benefit, investors must be on the company’s record no later than July 13. The ex-dividend date is scheduled for July 12. If held constant, the quarterly distribution will lead to a forward annual dividend of 20 cents, granting 1.22%.
Freeport-McMoRan Inc. is a mining company with operations, assets, explorations and development of mineral projects in the Americas and Indonesia.
The miner has significant value nestled in mineral resources that are in need of development. The development includes a pipeline of long-lived mined projects, which are dependent on favorable conditions in the commodity market.
Freeport-McMoRan Inc. operates in a high-intensive capital industry. That means that the company must invest a sizeable war chest to keep its portfolio of assets up-to-date. This characteristic of the mining industry makes Freeport-McMoRan more susceptible to economic slowdown in the commodities market. However, that doesn’t seem to be the case for the coming years since the global production of copper, which is its main income source, is predicted to exceed 25 million metric tons of metal in two years’ time.
The demand for copper is driven by its evolving of technological applications across a number of industries, including renewable energy, telecommunications, electronics and building and construction. It will be used widely in the construction industry as urbanization throughout parts of the world, such as Asia, grow at a stunning pace.
Therefore, the price of copper is projected to stay supportive.
With a value of 2.04 total assets to the trailing 12-months sales ratio, the company is one of the best in the mining industry. The ratio is a measure of the company’s capital intensity and one of the metrics I like to look at when screening for mining stocks.
If we have a look at the situation in the last five fiscal years, we can clearly see that a supportive copper allowed the company to improve the asset turnover financial ratio starting in 2016.
At the same time, the company is also studying solutions to reduce the amount of funds it dedicates to long-term projects.
At its Lone Star Project, the existence of infrastructure will lower costs. The mineral project is expected to deliver an annual volume of 200 million pounds of copper over a 20-year mine life. The project is located in Arizona near the Safford operations.
At Grasberg in Indonesia, the miner is well on the way of transitioning from open pit activities to underground mining activities. Grasberg is one of the largest deposits of gold and copper in the world.
There is only obstacle at Grasberg. Indonesian authorities have been trying for years to have a louder voice in decision-making about the exploitation of its resources. Freeport-McMoRan owns a 90.64% stake in the asset and the Indonesian government has 9.36% interest
Freeport-McMoRan Inc. has a market capitalization of $24.48 billion and per share it is at 200 and 50-SMA lines value. The share price is still well below the 100-SMA line, 44.3% off the 52-week low of $11.71 per share and 19.8% far from the 52-week high of $20.25 per share.
I would wait until the share price falls beneath the 50 and 200-SMA lines. This is highly possible with the U.S. Dollar gaining strength. U.S. Dollar and price of commodities are inversely related. That is particularly true in the case of the yellow metal.
In terms of enterprise value to earnings before interest, taxes, depreciation and amortization, or Ebitda. Freeport-McMoRan is well positioned with a value of 5.73 times towards an industry median of 9.9 times.
The recommendation rating is 2.7 out of 5 and the average target price is $19.19 per share.
(Disclosure: I have no positions in any security mentioned in this article.)
