Freeport McMoRan Inc. is testing the nerve of the copper industry, and its own investors, with an expansion that has it poised to become the world’s biggest producer at a time of slowing China growth.
The Phoenix-based company will close the gap with current world No. 1 Codelco next year after expanding mines in Peru and the U.S. and as the Chilean state-owned company runs out of profitable ore at a mine in the Atacama Desert.
For those predicting a more precipitous demand slump as China shifts to a consumer-driven economy, Freeport’s growth makes little sense. But for the company — whose 76-year-old Chairman Jim Bob Moffett oversaw the discovery of the world’s biggest copper-gold operation in the jungles of Indonesia 27 years ago — the industry’s aging mines will struggle to keep up with even moderate global demand growth. It’s a view shared by Goldman Sachs Group Inc., Morgan Stanley and Macquarie Group Ltd., which predict shortages emerging beginning 2017.
“They are making the right bet,” said Christopher LaFemina, an analyst at Jefferies LLC, who recommends buying Freeport stock. “If you are going to be leveraged to a commodity price, this is the right one. If you compare to iron ore or coal, copper is better.”
As Freeport readies a $4.6 billion expansion at the Cerro Verde mine in Peru, Chief Executive Officer Richard Adkerson will join a debate on the supply side’s reaction to slowing demand at the industry’s annual get-together in Santiago this week. While Freeport ramps up, competitors such as Anglo American Plc and Teck Resources Ltd. have postponed investments.
For now, prices of the metal used for electrical wire are holding up better than other industrial commodities.
The industry waited anxiously when copper plunged 13 percent on the London Metal Exchange in January as oil and iron-ore collapsed to around six-year lows after producers flooded the market. Since then, a spate of production setbacks signaled this year’s projected copper surplus won’t eventuate, fueling a 10 percent rally. Copper for delivery in three months fell 0.4 percent to $6,014.50 a ton by 11:47 a.m. in London.
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