Freeport-McMoRan's a Beautiful Buy
You'll search far and wide to find anyone who's unfamiliar with the antique idiom that it's wise to strike while the iron is hot. Somewhat conversely, however, Fools with a penchant for giant metals producerFreeport-McMoRan Copper & Gold (NYS: FCX) would seemingly be sensible to convolute the old saying with a notion of buying while the strike is hot.
As you no doubt recall, the workers at Freeport's giant Grasberg copper and gold facility at Papua, Indonesia (which just happens to contain the world's largest reserves of both metals) are now well into their third month of a work stoppage stemming from their demand for higher wages. Approximately four-fifths of the 10,000 employees at the big facility have been sitting out their work shifts until their demands for higher compensation are met. Somehow they consider their current pay scale in the range of $1.50 to $3.50 hourly to be insufficient. As such, they're holding out for bump in the vicinity of $7.50 an hour.
Under the circumstances, it's likely that the Black Friday crowds were somewhat light at Papua. And beyond that, Indonesia's government has estimated that the output from the big facility has been reduced to about 5% of its capacity of approximately 230,000 tons of ore per day. That results in lost taxes and royalties of about $8 million daily for that same government. As such, there are numerous interested parties regarding the strike's settlement or lack thereof.
But it's just as clear that both the workers and the company are sticking to their respective positions. Earlier this month, Grasberg workers rejected an offer of a 35% wage hike. And yet, the two sides appear to be inching closer than it might have appeared they were earlier. According to union official Virgo Solossa, an hourly wage hike in the vicinity of $6 would receive careful consideration from the strikers.
Indeed, there's potentially positive movement on a union proposal that would stagger the workers' pay increases, with those workers on the bottom of the totem pole being boosted by 35%, those in the middle by 50%, and the chiefs at the top receiving a doubling in their compensation. This latest proposal apparently would also result in expanded employee benefits. In the meantime, Freeport also is enduring a strike at its unit in Peru, but that less consequential situation will be subject to a settlement involving a government push within the next couple of weeks.
Ready, set, halt at Newmont
Meanwhile, Newmont Mining (NYS: NEM) has halted a strike at its Batu Hijau copper and gold mine in Indonesia -- the second-largest such facility in the country. However, rather than a pure compensation disagreement, as is the case with Freeport, the Newmont dispute involved shifts and the calculation of overtime compensation. Beyond that, however, it's wise to keep an eye onSouthern Copper (NYS: SCCO) , given the history of unrest in the industry, the company's Grupo Mexico parentage, and the increasing violence in that country.
And then there's the supreme importance of copper prices. During the past month, the two big Anglo-Australia mining companies, BHP Billion (NYS: BHP) (ASX: BHP.AX) and Rio Tinto (NYS: RIO) (ASX: RIO. AX) have expressed concern about the strength of the world's commodities markets as the economies of Europe and the U.S. become less robust. However, despite Rio CEO Tom Albanese's overall sentiments, he included copper among the company's products that are "holding up." (He noted that aluminum -- often used as a copper substitute -- is now priced lower than its manufacturers' marginal cost of production. Hence Alcoa's (NYS: AA) shares' decline of nearly 50% price since spring.)
Is the red metal headed higher?
But since investing is about the future, and rearview mirrors mean very little, it's clearly significant that Timothy Parker, a natural resource portfolio manager at T. Rowe Price Group, expects the red metal's prices to exceed $4 per pound during 2012, up from $3.36 on Monday. His rationale? He believes that, with its destocking slowing, demand from China will return to at least semi-voracious levels. Assuming that Freeport will have its employee disgruntlement under control soon, a likely effect will be a healthy hike in its share price, along with those of, among others, Canada's Ivanhoe Mines (NYS: IVN) .
It's already looking like Parker may be prescient. In mid-November, Freeport and Jiangxi Copper, a leading Chinese copper smelter, agreed to boost 2012 term treatment and refining charges to $63.5 a ton, up 12.4% from this year's levy of $56.5.
Foolish bottom line
Amid the lights-out market on Monday, Freeport's shares each jumped $2.12, to $39.94, for a 6.3% gain. Would that they headed in the same direction consistently. After all, if the macro picture unfolds positively, as I believe it will, with the company's return on equity of 43%, profit margin of 24.5%, five-year 3.00% dividend yield, and trailing P/E of just 6.3 times, I'm wagering that the Freeport's sunny days will outnumber its dreary ones. After all, the biggest publicly traded copper producer is still trading at more than 40% below its 52-week high. If those metrics have captured your fancy, keep tabs on Freeport-McMoRan's progress by adding it to your version of My Watchlist.
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At the time this article was published The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Fool contributorDavid Lee Smithdoesn't own shares of any of the companies mentioned above. The Motley Fool has adisclosure policy.
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