Is the Freeport McMoRan worth buying while it’s under $50?

The copper, gold and molybdenum mining company recently topped $50. Freeport McMoran’s (FCX 1.27%) At the time of writing, shares have fallen to around $46.60. Frankly, this looks like a good buying opportunity for a stock with great long-term growth potential. Here are four reasons why.

Valuation remains attractive

Don’t read any further unless you’re optimistic, or at least skeptical, about the price outlook for copper, the most important metal mined in Freeport. The latter applies because based on the current copper price of around $4.30 per pound, Freeport McMoRan shares are attractively priced.

At each quarterly results presentation, management outlines its earnings before interest, taxes, depreciation and amortization forecasts (EBITDA) based on the price of copper. Based on the latest forecast and a current price of around $4.30 per pound, Freeport McMoRan will generate approximately $12.2 billion in EBITDA in 2025/2026.

At a current enterprise value (EV) of around $71.6 billion (market cap plus net debt), the stock would trade at an EV/EBITDA multiple of just under 5.9 times EBITDA in 2025/2026. As you can see below, this is a relatively favorable valuation for the company.

FCX EV to EBITDA data on YCharts

Demand trends remain favorable

Copper has traditionally been considered an economically sensitive metal, with demand ebbing and flowing with economic growth due to its widespread use in various industries. This remains true, and weakness in global auto and housing markets in 2024 has negatively impacted demand.

However, increased demand driven by global secular megatrends such as the electrification of everything and the transition to clean energy means that investment in electrical infrastructure and artificial intelligence data centers will “more than offset weakness in traditional demand sectors in homebuilding and automotive,” while how “China’s demand for copper continues.” grow despite a weak real estate sector,” CEO Kathleen Quirk said in the earnings release.

Indeed, the Chinese government’s statement about incentive measures supported copper prices and Freeport shares in September.

Leaching Initiative

The bullish outlook for copper is not based on a positive demand outlook; investors also need to consider supply constraints: decreased supply usually means upward pressure on prices. Freeport is well positioned in this regard as it has the potential to increase supply while other miners may face greater challenges.

Its best near-term potential lies in an initiative to leach copper from existing tailings (waste with little copper remaining). The good news is that the company continues to make excellent progress in this regard. The 58 million metric tons produced in the third quarter means that 211 million metric tons were produced in the last 12 months.

Management believes the annual rate will reach 300-400 million metric tons in 2026 and eventually reach 800 million metric tons. With a copper production target of 4.1 billion tonnes in 2024, the leach initiative offers a significant opportunity to expand production.

Mining Expansion Projects

During the earnings call, management also discussed potential investments in existing projects to expand offerings. The company believes it can eventually increase production at its Bagdad, Arizona mine from 200 million to 250 million metric tons, with a potential start-up in 2029.

Meanwhile, Freeport is conducting a pre-feasibility study on an expansion project in Safford, Arizona, that could more than double existing production of 300 million metric tons per year (starting in the next decade) of a resource that Quirk believes “could be something something that will be with us for a very long time.”

In addition, there is potential to increase annual production by 750 million pounds at El Abra, Chile, with a start-up date of approximately 2033.

Stock to buy?

Given the current copper price, long-term demand, and Freeport’s potential to expand production in the short term through its leach initiative, as well as in the long term through potential brownfield expansion projects, Freeport is an ideal stock for copper bulls. .

So a stock price below $50 looks extremely attractive as an entry point.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has disclosure policy.