An Insider Put Half A Million On Freeport-McMoRan’s Move Into Oil

Southern Copper Corp (NYSE:SCCO), Newmont Mining Corp (NYSE:NEM), and Vale SA (NYSE:VALE) are three peers for Freeport-McMoRan. Southern Copper and Vale (an industrial metals miner) have betas of higher than 1.5, reflecting their sensitivity to economic conditions, while Newmont Mining primarily produces gold. The trailing earnings multiples at Southern Copper and Vale are considerably higher than at Freeport-McMoRan, in the 17-20 range, and neither company has turned in a particularly strong performance recently (though commodity prices rather than operations likely drive all of these companies’ results). Newmont, whose revenue declined 11% in the fourth quarter of 2012 versus a year earlier, has valuation multiples which are more in line with Freeport-McMoRan’s though there is still a small premium in both trailing and forward P/Es.

We’re certainly aware of the risks of M&A, but Freeport-McMoRan does seem cheap in terms of its current business and it’s possible the market has already accounted for any loss of shareholder value that will occur due to the transaction. We generally don’t give too much weight to insider purchases or hedge fund activity, but they certainly aren’t negatives in our eyes. With some peers trading at higher multiples we actually would say that Freeport-McMoRan is worth further research as long as integration risks are kept in mind.

Disclosure: I own no shares of any stocks mentioned in this article.