• 4 minutes China 2019 - Orwell was 35 years out
  • 7 minutes Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 11 minutes Trump will capitulate on the trade war
  • 14 minutes Glory to Hong Kong
  • 14 mins China's Blueprint For Global Power
  • 24 mins World Stocks Drop And Futures Tread Water After China Reports Worst GDP Growth In 30 Years
  • 6 hours PETROLEUM for humanity 
  • 5 hours ABC of Brexit, economy wise, where to find sites, links to articles ?
  • 5 hours National Geographic Warns Billions Face Shortages Of Food And Clean Water Over Next 30 Years
  • 2 hours Yesterday Angela Merkel stopped Trump technology war on China – the moral of the story is do not eavesdrop on ladies with high ethical standards
  • 2 hours Why did Aramco Delay IPO again ? It's Not Always What It Seems.
  • 5 hours Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 8 hours Brexit agreement
  • 7 hours Bloomberg: shale slowing. Third wave of shale coming.
  • 7 hours Why don't the other GOP candidates get mention?
  • 5 hours Idiotic Environmental Predictions
Alt Text

What The Market Is Overlooking In The Occidental Deal

Occidental Petroleum has caught a…

Alt Text

How To Play A Recovery In Oil Prices?

A realistic correction in the…

Mad Hedge Fund Trader

Mad Hedge Fund Trader

John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

More Info

Premium Content

Is Now the Time to Get Back Into Copper?

I have been following Freeport McMoRan (NYSE:FCX) for about 30 years now, and it has long been one of my favorite companies, as it is one of the world's purest plays on copper. I followed it during the dark days when the red metal was trading in the basement at $0.70/pound, and liked it just as much when copper hit $4.75 in 2011. Another plus is that I know the senior management are regular readers of this letter. You can't exactly read about the copper market in Maxim, GQ, or Playboy.

So when the stock cratered by 20% yesterday on a merger announcement, a new 14-month low, I sat up and took notice.  Specifically, it said it would pay $9 billion for Plains Exploration & Production, an oil producer, and a second company, McMoRan Exploration Company, which it had previously owned until 1994. That's a big bite to swallow for a firm that has a remaining market capitalization of $27 billion. The deal will be financed by $11 billion in new debt.

(FCX) is clearly looking at China's soaring energy demand as an impetus to get back into the oil business. They agree with my own analysis that the US is well on its way to becoming the world's largest energy exporter. These acquisitions give them skin in the game, with stakes in oil shale formations in Texas and Louisiana, fields that I once owned myself.

They will also get a presence in offshore production in the Gulf of Mexico, an area that was always too rich for my blood, with drilling costs starting at $10 million a well. The new, larger company will earn about 74% of its income from copper and gold mining and 26% from oil and gas.

The bears dumped the stock for a number of reasons. The company passed on a special dividend in order to fund the takeovers, because it feels it will get a much greater bang per buck over the long term. The premium paid was substantial, and the increased leverage will certainly weaken the balance sheet.

The real reason I want to do this trade is that I believe we are not far from seeing a turnaround in the Chinese economy, which has been shrinking for three years. Traders thought as much when they ran the Shanghai stock market up 3% yesterday, the best move in years.

Now that the new government is in place, the path is set for them to announce an additional round of stimulus to get the economy back on track. If so, that would be spectacular news for oil, copper, and gold, all of the new FCX's products. Think of (FCX) as a cheap call on China.

The long-term case for copper is still compelling. The Chinese drive for a higher standard of living is irresistible, and that requires enormous amounts of copper for roads, construction, and shipbuilding. China accounts for more than 50% of the global demand for copper. A burgeoning global hybrid and electric car industry is also increasing demand for copper.

We are at a level in the shares, just above $30, where value players start to come into this name. That puts the shares at a bargain basement 4X EBITDA. The 3.30% dividend yield is an additional kicker, more than double the ten year Treasury bond yield.

Freeport McMoRan Copper & Gold


Copper - Spot Price

Shanghai Stock Exchanfe Composite Index

By. The Mad Hedge Fund Trader




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play