Freeport-McMoRan Copper & Gold Inc. (FCX): Should You Catch This Falling Knife?

The precious metals sector has had a rough week, as commodity prices for metals went into a free fall after negative economic news out of China. Gold prices led the way with a drop of over 15% from April 11^th to April 15^th.  Copper similarly experienced a large price move, dropping from $342.5 to around $315 per pound.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is often thought of by the market as a pure-play proxy for copper, and was similarly hit by the bad economic news and experienced a sell-off.   In addition, the Company also recently released its first quarter earnings report.  The question for investors is whether now may be a good entry point for initiating a position in the Company, or whether the share price has further to fall.  The trading adage goes that you shouldn’t try to catch a falling knife.  With Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s recent expansion into the oil and gas field, along with a reasonable dividend yield for the stock, the Company deserves a closer look by investors.

The financials

Freeport-McMoRan is a copper, gold and molybdenum mining company.  The Company has large open-pit and underground mining operations in North America, South America and Africa. Freeport-McMoRan released its Q1 earnings for 2013 on April 17^th.  The Company announcing that net income attributable to common stock was $640 million, or $0.68 per share, compared to net income of $764 million, or $0.80 per share, for Q1 of 2012.

Operation net cash flows were estimated to be $5.5 billion for 2013.  The Company had sales of 954 million pounds of copper, 214,000 ounces of gold, and 25 million pounds of molybdenum, representing an increase in the sale of copper and molybendum versus Q1 of 2012, but a reduction in the amount of gold sold.  Net cash costs increased to $1.57 per pound of copper, versus $1.26 for Q1 of 2012.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) anticipates that its proposed acquisitions of Plains Exploration & Production Company (NYSE:PXP) and Mcmoran Exploration Co (NYSE:MMR) will be completed in the second quarter of 2013.  The Company stated it had completed $10.5 billion in debt financing for these acquisitions, with a weighted average interest rate of 3.1%.  These acquisitions would expand Freeport-McMoRan’s activities into oil and gas exploration and development.  It is uncertain how the newly diversified focus on both mineral extraction and oil and gas will impact the operation of the Company, and what the ultimate impact on the bottom line will be.