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A Prescient Purchase for Freeport-McMoRan Copper & Gold Inc. (FCX)

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It’s beginning to look like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)‘s acquisition of oil and gas produce Plains Exploration was prescient. The prospects of an extended closure of its huge Grasberg mine means its drilling operations may be what allows it to survive.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)

Two weeks ago, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) suffered a mine collapse in a training area that killed 28 workers. After temporarily suspending operations even though the area was away from its main mining operations, Freeport reopened the mine last week. But another accident on Friday, where a truck driver was killed when his vehicle was covered in wet sludge, had the mine workers union calling for a work stoppage and the government forcing the mine’s closure until it completes its investigation, an inquiry that could take as long as three months to finish.

A deep hole to climb out of
Miners, of course, don’t exist on immediate output alone; there is typically three to four weeks of stockpile to get by temporary setbacks. But Freeport has been cagey about how much of a reserve it has on hand, raising the possibility it could default on shipments to its customers. In 2011 it ran into that problem after a strike ran on, causing the miner to declare a force majeure that got it out of some of its contractual obligations.

While there was a lot of grousing, the miner was returning to its roots as a multiline resources company — it will also be purchasing Mcmoran Exploration Co (NYSE:MMR), a driller it had spun out in the 1990s — after a series of mishaps and deadly accidents at its huge Grasberg mine, it could be the drilling operations that Freeport relies upon to see it through.

Mining is no longer the sure thing it once seemed. In April, Rio Tinto plc (ADR) (NYSE:RIO) suffered a massive wall collapse at its Bingham Canyon mine in Utah that shut its operations there and will probably prevent mining operations from resuming for a year. Its shares have fallen 13% as a result.

In Chile, Barrick Gold Corporation (NYSE:ABX) is facing severe delays in the development of its huge Pascua Lama gold project as it wrangles with the government, while Newmont Mining Corp (NYSE:NEM) has suffered setbacks at its Conga project in Peru.

Although each of those miners has other mines to which it can turn to help ease the pain of waiting, they’re not nearly as lucrative as the main projects but remain potentially politically controversial. Miners everywhere are running into issues with local indigenous populations that are causing delays and raising the costs associated with their mines.

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