Freeport-McMoRan Copper & Gold Inc. (FCX): This Copper Producer Is Looking Interesting

Alternatives: Rio Tinto and Southern Copper

Rio Tinto plc (ADR) (NYSE:RIO) is one of the world’s largest mining companies and is about twice the size of Freeport by market cap. Although Rio Tinto plc (ADR) (NYSE:RIO) is the fourth largest copper producer in the world, it accounts for just 12% of the company’s revenues, with the rest coming from iron ore (44%), aluminum (18%), coal (10%), and diamonds (7%). Shares have been beaten down even worse than Freeport’s, down about 30% year-to-date due to their massive reliance on iron ore. As a result, Rio Tinto plc (ADR) (NYSE:RIO) trades for 8.1 times 2013’s earnings, and bear in mind that they don’t have uncertainty related to a new acquisition.

Southern Copper Corp (NYSE:SCCO) produces mainly copper and molybdenum and operates in Peru, Mexico, and Chile. Because this company is the closest to a pure copper mining play of the three listed (77% of sales come from copper), it does not have exposure to additional negative catalysts such as iron and gigantic diversifying acquisitions. However, in my opinion the lack of diversification among Southern Copper Corp (NYSE:SCCO)’s business is a negative. The company is also the most highly valued at 12.5 times current year earnings and relatively flat growth projected.

Conclusion

The depressed valuation resulting from a combination of a weak market for copper and the recent acquisitions, which added a lot of debt and diversification, have resulted in a rock-bottom valuation for Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). While there may still be headwinds in the short term, I think investors with the stomach to ride out the storm in Freeport will be handsomely rewarded in the years ahead.

The article This Copper Producer Is Looking Interesting originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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