The CEO of the world’s largest copper mining company bought 1 million shares of his company’s stock at $31.16 per share on June 3.
At the time of this writing, shares are trading around $29.32.
Now, I don’t want to suggest blindly following the investment moves of every industry insider. But when a CEO makes a $31 million purchase of his company’s stock, which is trading for the cheapest it’s been since 2008 — I think a closer look is in order.
Regular readers may already know that mining stocks have not fared as well as the broader market so far this year. Commodity prices for precious metals have been lagging, which creates headwinds for producers and drives share prices down. In another example, Barrick Gold Corporation (USA) (NYSE:ABX) (which I covered two weeks ago), has been trading for the cheapest valuation we’ve seen since 2004.
The company I’d like to take a look at today is Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX).
According to regulatory filings, James C. Flores, CEO and president of Freeport-McMoRan Oil & Gas, just bought 1 million shares of his company’s stock. To be clear — this was not an “acquisition” or an exercise of stock options — this was a buy order.
So the questions that immediately arise are “Why now?” and “What does the future look like for the company?”
Why now? Put simply, the stock is cheap. In April, share prices dipped to $28, which was as cheap as the stock has been since 2008. Even at today’s asking price, shares are still trading for only 8 times forward earnings and a price-to-book ratio of 1.6.
There are two main reasons for the current depressed prices. The first is the price of copper.
Although it also mines gold and molybdenum (used to make steel alloy), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is the world’s largest publicly traded copper miner. The company sells an average of 3.9 billion pounds of copper every year.
Since the heady days of 2011, when copper was trading up to $4.50 a pound, prices have been in decline. This is mostly due to decreased demand from China, which consumes approximately 40% of the world’s copper supply for industrial purposes.
While the short-term decline may appear to bode ill for miners like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), it’s important to also takenote of the enormous gains copper has made over the past decade.
Even at today’s slightly lower prices, the metal is more than three times as valuable as it was 10 years ago.
Some analysts argue that the recent sell-off has been overdone. As Bloomberg recently reported:
While prices have suffered on concerns China’s economy may slow, [Goldman Sachs] said the country’s “underlying cyclical growth is likely stronger than the headline figures suggest.”