Freeport-McMoRan Inc (NYSE:FCX) stock fell 1.08% (As on June 25, 1:55:58 AM UTC-4, Source: Google Finance) after Morgan Stanley upgraded the company to Overweight from Equal Weight with a price target of $62, up from $49.50 as part of a broader research note on U.S. Metals & Mining names. Global decarbonization and electrification trends, rising geopolitical tensions testing legacy supply chains and increasingly challenging conditions to develop new supply continue to underpin a positive outlook for the mining sector in the coming years.
The analyst noted that Freeport-McMoRan has completed the PT-FI smelter and anticipates a forthcoming agreement to extend the Grasberg mine operations, which is the company’s most lucrative mine, for an additional 20 years past the current expiration in 2041. The extension at Grasberg is expected to significantly impact the company’s valuation and share price.
Morgan Stanley’s assessment suggests that an agreement to extend the Grasberg mine operations could lead to a re-rating of Freeport-McMoRan’s multiples. The anticipated deal is projected to add approximately $2 to the firm’s discounted cash flow (DCF) valuation per share. This estimate is based on the assumption of a 10% reduced stake in the Grasberg mine.
The Grasberg mine, located in Indonesia, is one of the largest gold and copper mines in the world. Its continued operation is crucial for Freeport-McMoRan, as it contributes significantly to the company’s production output and financial performance. The potential 20-year extension would secure a long-term outlook for the company’s most profitable venture.
Meanwhile, net income attributable to common stock in first-quarter 2024 totaled $473 million, $0.32 per share, and adjusted net income attributable to common stock totaled $474 million, $0.32 per share. Consolidated production totaled 1.1 billion pounds of copper, 549 thousand ounces of gold and 18 million pounds of molybdenum in first-quarter 2024. Consolidated sales are expected to approximate 4.15 billion pounds of copper, 2.0 million ounces of gold and 84 million pounds of molybdenum for the year 2024, including 1.0 billion pounds of copper, 500 thousand ounces of gold and 21 million pounds of molybdenum in second-quarter 2024. Operating cash flows are expected to approximate $7.4 billion, net of $0.2 billion of working capital and other uses, for the year 2024, based on achievement of current sales volume and cost estimates, and assuming average prices of $4.25 per pound for copper, $2,300 per ounce for gold and $20.00 per pound for molybdenum for the remainder of 2024.