What Drove Freeport-McMoran’s Second Quarter Success?

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), the world’s largest copper mining company, reported its second quarter earnings a short time ago. Net income of $1.37 billion represented a surge, of about a 110% increase from the same period last year. The bull market for precious metals helped the company sustain major revenue gains, with the average realized price for copper at $4.22 per pound and $1,509 per ounce for gold while FCX upped its copper production by 4% and gold production by 11%.

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Trefis.com analysis reports that the stock is still undervalued due to constraints on production and high short-term expenses it reported last quarter.

“Freeport has spent heavily to improve its production capacity and has been on the search for new projects. The company set aside almost $2.5 billion for capital expenditures with $1.3 billion earmarked for major projects this year. We estimate that the consolidated copper sales will be 3.9 billion pounds and 1.6 million ounces for gold (NYSE:GDL) during 2011. Freeport has been plagued from production woes at some of its major mines and this may affect the 2011 revenues.

At the Grasberg mine, the world’s largest copper and gold reserve base, the production may fall this year due to an eight-day labor strike in July that temporarily halted the operations at the mine. Freeport may have lost 35 million pounds of copper and 60,000 ounces of gold (NYSE:GLD) production during the strike. Moreover, lower quality copper ore has resulted in a decline in the production levels for the company in the past.”

Not only should the company continue to gain from a normalized production schedule, but sky-high demand for Copper from emerging markets (NYSE:EEM), China (NYSE:FXI) in particular, should conspire to keep revenues soaring. Trefis is holding a price target of $57.57 on the stock, which currently trades at $53.20.