Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Freeport-McMoRan Copper & Gold Inc. (FCX), And Why Diversification Is Crucial

Gold is plunging and cooper entered a bear market in recent days; the fact that Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is entering the oil and gas market is beginning to make more sense. Freeport has been heavily tied to the copper industry:

Freeport’s stock has been pressured by 10% in recent days on tumbling gold and copper prices. Freeport currently derives more than 80% of its revenue from cooper, but its foray into oil and gas should help diversify the company’s revenue.

In December 2012, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) agreed to buy Plains Exploration & Production and McMoRan Exploration for around $9 billion. It will pay $6.9 billion for Plains (oil production) and $2.1 billion for McMoRan (natural gas driller).

Freeport expects the combined entity to generate operating cash flow of roughly $9 billion in 2013 compared to the $3.7 billion the company generated in 2012. What’s more is that the new additions should add significant synergies. Analysts expect EPS to grow nicely from $3.22 in 2012 to $4.10 in 2013 and $4.49 in 2014.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is also progressing with its expansion initiatives in South America and is conducting pre-feasibility studies for a potential large-scale milling operation in Chile. What’s also encouraging is that sales outside the U.S. account for 65% of total performance. Freeport also has a couple billionaires that love the stock, including John Paulson (top hedge fund owner by shares) and Leon Cooperman.

Southern Copper Corp (NYSE:SCCO) is one of Freeport’s major competitors, acting as an integrated copper producer. All of its mining, smelting and refining facilities are located in Peru and Mexico.

Two other major metal miners include Rio Tinto plc (ADR) (NYSE:RIO) and Vale SA (ADR) (NYSE:VALE). Rio Tinto mines and processes mineral resources. Vale is a Brazil-based metals and mining company. However, much like the weight that copper prices have on Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), these two companies have immense exposure to the steel industry.

Both companies have been hurt recently due to low steel demand and pressured iron-ore prices. However, tailwinds from GDP growth should help with increasing the steel and cooper demand.

In recent weeks, Vale posted fiscal second quarter results that fell 18% year-over-year due to lower sales, but the company still beat analysts’ estimates. The iron ore company reported net income of $3.1 billion for the quarter, while analysts had expected an average of $2.7 billion.

The result was still down from approximately $3.8 billion a year earlier, and 25% below the average $4 billion quarterly profit the producer of iron ore recorded for the previous 11 quarters. Analysts now expect the company to see earnings fall by annualized 3% over the next five years.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.