Last week, Freeport McMoRan Copper & Gold (FCX) reported second-quarter earnings of $1.43 a share, 7 cents a share above Wall Street projections. Revenue climbed to $5.81 billion, a 50.5% increase from the second quarter of 2010. (The stock is a member of my Jubak’s Picks portfolio.)

There were three especially positive parts of the Freeport McMoRan story this quarter:

  • Sales grew from last year’s levels. Sales of copper climbed to 1 billion pounds (from 914 million in the second quarter of 2010), molybdenum to 21 million pounds (from 16 million), and gold to 356,000 ounces (from 298,000).
  • Cash costs fell, with net cash costs for copper, for example, dropping to 93 cents a pound from 97 cents a pound in the second quarter of 2010.
  • And projects that are estimated to add 20 million pounds of molybdenum production in 2013 and 975 million pounds of copper production by 2016 continued on track at very modest capital cost.

One of the reasons to prefer Freeport McMoRan to other mining companies is the relatively low capital expenditure—a result of a reliance on restarts, such as that at the Climax molybdenum mine, and expansions at existing mines—forecast by the company to pay for this huge expansion in production.

Capital spending came to $1 billion in the first half of 2011, up from $527 million in the first half of 2010. Total capital spending for 2011 is projected at $2.6 billion.

With an estimated cash flow of $8 billion in 2011, and a capital budget of just $2.6 billion, the company has been able to pay down debt. In the second quarter, for example, Freeport McMoRan paid down $1.2 billion in debt, including $1.1 billion in 8.25% senior notes.

Goldman Sachs is predicting a pickup in copper demand in the second half of the year, as Chinese companies that have sold down inventories restock. I think Freeport McMoRan should be able to earn $6.20 in 2011, and $7.10 in 2012.

Using a price-to-earnings ratio of 10.5, about average for a stock in the base-metals mining group, I get a target price of $75 a share for July 2012. That’s an increase and stretch-out from my current target price of $72 by September.

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did own shares of Freeport McMoRan as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.