Copper is one of the metals that suffered the least this year. Wide industrial implications of copper make it a more price-stable metal than others. Nevertheless, it is down 10% this year, although there are signs that it can recover. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is the best copper play available in the marketplace now–here’s why.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has recently secured deals to acquire Plains Exploration & Production Company (NYSE:PXP) and Mcmoran Exploration Co (NYSE:MMR). With the help of these deals, Freeport-McMoRan has diversified its assets into the oil and gas industry. Oil and gas prices have been more stable this year than metals prices. Related project spending was stable too. These deals make Freeport-McMoRan less dependable on metal prices.
The stock was punished by investors right after the deals were announced back in December 2012. The deals have spurred a flurry of lawsuits from shareholders of three companies. The claims were controversial, stating that Freeport-McMoRan both underpaid and overpaid. This fact helped the company secure the deals without major problems. The stock did not recover to the pre-deal prices. It is down 9% year-to-date, while copper prices are down 10%.
No major harm from recent incident
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) operates the Grasberg Mine, which is the largest gold mine and the third-largest copper mine in the world. This mine is situated in Indonesia. On May 14, a tunnel collapsed and killed 28 miners underground. The government has started an investigation on this issue, and is estimated to take less than three months. This means that production would be halted until the conclusion from government officials comes. This is bullish for copper prices, because it removes 100,000 to 150,000 metric tons of copper supply from the market.
Who else could benefit from the possible rise of copper prices? Southern Copper Corp (NYSE:SCCO) operates copper mines in Peru, Mexico and Chile. Its stock is down 16% this year. Southern Copper trades at a 13 forward P/E and pays a dividend that yields 2.5%. Analysts have a $40.51 mean target price for this stock, 29% higher than the current price. If copper prices start to rebound, this target is reachable. In fact, Southern Copper has already traded above $40.00 this year.