Taking a Look at Freeport-McMoRan and Its Bonds

natural-resource-explorationIncome-focused investors looking to add exposure to basic materials should consider Freeport-McMoRan Copper & Gold (FCX). The company describes itself as a “premier U.S.-based natural resource company with an industry leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile.” Freeport-McMoRan is the world’s second largest copper producer behind Codelco, and the world’s largest publicly-traded copper producer. Some additional noteworthy company details include the following:

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  • In addition to copper, FCX sells gold, molybdenum, and oil and gas. Its 2013 full-year sales outlook is for 4.1 billion pounds of copper, 1.1 million ounces of gold, and 92 million pounds of molybdenum. The most recent oil and gas sales outlook is for the second half of 2013 and checks in at 37.5 MMBOE (million barrels of oil equivalents).
  • 2013 operating cash flows are expected to total approximately $6 billion. Capital expenditures for 2013 are expected to total roughly $5.5 billion.
  • Freeport-McMoRan is in the process of cutting costs by $1.9 billion by the end of 2014. The company is also exploring potential asset sales, in an effort to reduce debt from $21.2 billion to $12 billion within three years.
  • FCX’s global footprint looks like this:

FCX Global Footprint

In terms of the bonds that fall under the Freeport-McMoRan umbrella, I created the table below to outline the various options. In addition to debt issued by Freeport-McMoRan Copper & Gold, there is also debt originally issued by Phelps Dodge, and debt originally issued by Plains Exploration & Production.

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At this time, the Plains Exploration & Production notes are all trading at significant premiums to par. When combining that with the call features attached to the notes, I think they are not the best value of Freeport-McMoRan bunch. Among the three Phelps Dodge CUSIPs, the 2034 maturing notes are the most intriguing at today’s prices. The difficulty will be finding enough available for purchase. Finally, with the exception of the 2015 maturing notes, Freeport-McMoRan Copper & Gold’s debt is currently trading at attractive prices for the given levels of risk.

* For additional details concerning the bonds mentioned in this article, please contact your broker and/or read the prospectus. Before purchasing individual securities, remember to do your own due diligence on the financial profiles of the companies under consideration. Only you can decide if purchasing individual securities is right for you.

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