Freeport-McMoRan Eyes 800M lb Copper Boost, Shares Up 30%

Key Takeaway

• Freeport-McMoRan aims to boost copper production by up to 800 million pounds annually from waste rock within 3-5 years.
• Shares of Freeport-McMoRan have risen 30% over the past year, outperforming a 17% increase in copper futures.
• CEO Kathleen Quirk focuses on leveraging technology for growth rather than major acquisitions, amid rising global copper demand.

Focus on Copper Extraction

Freeport-McMoRan Inc., a leading US copper producer, is intensifying efforts to extract copper from waste rock stockpiles, aiming to boost supply amid rising global demand. CEO Kathleen Quirk emphasized the company's commitment to leveraging technology for this purpose, rather than pursuing major acquisitions. "I’m really focused on this issue, because when we look around, we know how hard it is to develop new supply," Quirk stated in an interview. The company plans to generate up to 800 million pounds of copper annually through this method within the next three to five years, which would account for one-fifth of its current production.

The push to extract copper from waste rock is a response to the industry's broader challenges. Copper is essential for the energy transition, with demand expected to double by 2035. However, the high costs and complexities of developing new mines have made producers hesitant to invest in new projects. Freeport has already extracted an additional 200 million pounds of copper through this recovery process and aims to add another 200 million pounds in the next two years. Despite technological hurdles, Quirk remains optimistic: "We think we’re going to get there — it’s just a matter of time."

Market Position and Performance

Freeport-McMoRan has seen its shares rise by about 30% over the past year, outperforming a 17% increase in copper futures. The company has become one of the world's largest copper producers and a key player in the US mining sector. This growth comes at a time when Western governments are keen to secure supplies of critical metals, and investors are increasingly interested in the copper market.

Despite its strong market position, Freeport faces several challenges. In Arizona, the company is converting mining haul trucks into autonomous vehicles to address a persistent labor shortage. Additionally, lower ore grades at aging US mines have increased expenses amid ongoing inflation. Analyst Christopher LaFemina from Jefferies Financial Group Inc. noted, "One criticism of Freeport is that it has effectively become a copper ETF. The question then is what can Ms. Quirk do to create additional value for shareholders even if the copper price does not rise?"

Strategic Outlook

While Freeport has not made significant acquisitions since its unsuccessful venture into offshore oil, Quirk is not opposed to future deals. However, she emphasized that acquisitions are not a priority. "Currently the world needs a lot of copper, and there aren’t a lot of willing sellers," she said. Quirk is open to exploring opportunities that would add value to Freeport but does not rely on acquisitions as a core strategy.

The broader industry has seen a wave of dealmaking due to concerns about copper scarcity. For instance, BHP recently abandoned a $49 billion bid for Anglo American Plc, which would have been the largest mining deal in over a decade. Other major producers like BHP, Rio Tinto Group, and Antofagasta Plc are also developing technologies to extract copper from waste rock, similar to Freeport's approach.

Street Views

• Christopher LaFemina, Jefferies Financial Group Inc. (Neutral on Freeport-McMoRan):

  "One criticism of Freeport is that it has effectively become a copper ETF... The question then is what can Ms. Quirk do to create additional value for shareholders even if the copper price does not rise?"

Management Quotes

• Kathleen Quirk, CEO of Freeport-McMoRan:

  "That’s the size of a big mine. That’s meaningful. Our team is working very aggressively to get that done."
  "I’m really focused on this issue, because when we look around, we know how hard it is to develop new supply."
  "You’re looking at this situation with the market being so tight, and there are not obvious actionable projects that can fill that gap... That situation is causing us to be more innovative — to figure out how to help fill this gap."
  "We think we’re going to get there — it’s just a matter of time."
  "Currently the world needs a lot of copper, and there aren’t a lot of willing sellers... But we don’t rely on that as our strategy."