Freeport's risky energy move highlights copper woes
Freeport-McMoRan Copper & Gold Inc's decision to diversify into energy highlights the dearth of attractive options available in copper, its main business, but few competitors are likely to follow its lead into unfamiliar territory.
Unlike many miners, Freeport - the world's largest listed copper producer - has roots in oil and gas. That made it easier for the U.S.-based miner to take its leap of faith in search of high margins.
Even so, Freeport's $9 billion play for Plains Exploration & Production and McMoRan Exploration Co shows that even industry giants are finding copper a challenge as mines age, grades decline and costs rise.
Freeport-McMoRan Copper & Gold was spun-off as a stand-alone entity in the mid-1990s from Freeport-McMoRan Inc, which back in the day also controlled the company now known as McMoRan Exploration.
Investors, it appears, blanched at the latest move and apparently would have preferred Freeport to stick to what it knows best. The stock tumbled nearly 16 percent after the plan was announced on Wednesday.
But experts say Freeport may have had few alternatives: there simply are not many known "Tier 1" copper assets left to gobble up, particularly in accessible locations. "We are seeing the quality of available copper asset out there in the market declining and what assets that are out there, a lot of them are saddled with one problem or another," said Alex Terentiew, a mining analyst with Raymond James.
"I do think (the deal) could partly reflect that the miners are starting
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