Shares in copper miner Freeport-McMoRan (FCX 5.27%) rose more than 5% today. The move comes as a consequence of an increase in the price of copper — up strongly from $3.46 per pound to $3.50 per pound. Freeport’s earnings will always be sensitive to the price of copper, and today was a good day.
That said, there was also some exciting news from a Reuters article stating that Freeport CEO Richard Adkerson is “working” with the Indonesian government to extend its operating rights in the Grasberg mine. Furthermore, Adkerson reiterated management’s view that it didn’t need to buy a rival to expand its asset base.
Adkerson’s comments are highly relevant. While most of the investor attention focuses on the demand-side case for copper, driven by its use in electric vehicles and electrification in the economy, there’s also a compelling supply-side story.
Simply put, it’s getting harder to acquire mining permits, and there are fears that production won’t be able to meet demand in the future. That’s partly why there’s recently been a flurry of takeover activity in the sector. As such, if Freeport can secure an extension to Grasberg beyond 2041, the market will look favorably on it — it’s a subject matter Adkerson also discussed on the recent earnings call. Similarly, if Freeport’s expansion plans in the U.S. and Indonesia mean the company doesn’t have to buy new assets, then investors have reason to feel comfortable with Freeport’s production outlook.
In the recent earnings call, Adkerson discussed a tight physical market for copper, even as the industrial metal price has dropped significantly over the last six months. If the tight market persists, the price will likely move higher again, and Freeport stands well placed to benefit, particularly given the potential for its production to expand.