Growth Projects Galore for This Mining Giant

Despite the ongoing supply limiting issues in Indonesia, Freeport-McMoRan Copper & Gold offers a plethora of growth for the long term.

Freeport-McMoRan remains known as the proxy for copper and a large global miner, but the company offers several growth projects, including the ability to substantially grow oil and gas production.

The most surprising jump is expected in copper production from the U.S. Along with the Gulf of Mexico oil and natural gas leases, the company is quickly shifting capital project focus and future production to more stable governments away from Indonesia. The following slide forecasts the projected growth in each major commodity through 2016.

Source: Freeport-McMoRan

Copper growth
As the cash-cow commodity for the company, Freeport-McMoRan has a solid list of growth projects coming online that will dramatically increase copper production in the next two years. The company expects production to jump from 4.3 billion pounds in 2014 to 5.7 billion pounds in 2016.

The majority of the increase comes from the expansion of the milling and mining capability at Morenci in Arizona. The project targets adding approximately 225 million pounds of copper in 2014, generating a 40% increase from 2013 levels. The total goal is to reach 1 billion pounds of copper production in 2015, compared to 564 million pounds in 2013. The project compares favorably to the roughly 800 million pounds produced annually at the Grasberg mine in Indonesia that continues to run into export issues.

The other large-scale project is the expansion at Cerro Verde in Peru. The project will expand the concentrator facility from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. As an example, Cerro Verde only produced 137 million pounds in the first quarter.

Oil and gas growth
Although outside investors might be surprised by the growth expectations in the oil and gas segment, the company bought the previous McMoRan Exploration Co. and Plains Exploration and Production Company assets with the expressed goal of dramatically growing production.

Freeport-McMoRan previously forecasted growing production from a rate of 64 MMboe in 2014 to over 100 MMboe by 2020. The interim goal was to reach 79 MMboe by 2016. With the recent deal to, in essence, swap the Eagle Ford assets for more Gulf of Mexico projects, the company will shift some of the production out from current levels.

As a reminder, the company recently closed on the sell to Encana of their Eagle Ford assets of 45,500 net acres with average daily production of 53,000 boe. For its part, Freeport-McMoRan got $3.1 billion in cash for the deal and invested it partly in the Gulf of Mexico.

The value realization appears very attractive considering Sanchez Energy only paid $639 million for 106,000 net acres with similar proven reserves in the 50 MMboe range. The Freeport-McMoRan sale is even more impressive considering Sanchez Energy is now only worth roughly $1.8 billion and has other significant assets.  

Bottom line
Though Freeport-McMoRan Copper & Gold continues to struggle to resolve the copper export issues with the government in Indonesia, it has plenty of growth projects outside that country that will lesson the impact. Even better, a lot of the growth includes shifting production assets toward the U.S. with Gulf of Mexico oil development projects and expanded copper production in Arizona.

The asset deals in the Eagle Ford also further suggest that Sanchez Energy got a very attractive deal considering the price obtained by Freeport-McMoRan.

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