It’s Back to Striking Gold at Freeport McMoRan

12/14/2011 3:45 pm EST


Jim Jubak

Founder and Editor,

The strike at Freeport McMoRan Copper & Gold’s (FCX) huge Grasberg mine is over.

The settlement with union workers is reasonable—an increase in wages over two years will raise pay to $7.50 an hour from the current $2.50—especially considering that initial demands were for $200 a hour. Credit Suisse estimates the agreement will raise costs at Grasberg by 2% in 2012 and 4% in 2013.

With the agreement in place, the company updated its estimates for copper sales in the fourth quarter to 800 million pounds of copper and 105,000 ounces of gold. That’s a reduction of 200 million pounds of copper and 200,000 ounces of gold from projections in the second quarter, before the strike. The company now expects full operations to be restored at the mine by early 2012.

The biggest effect will be on fourth-quarter earnings, where I think the current Wall Street consensus projection of 88 cents a share—already a 46% drop from earnings in the fourth quarter of 2010—is still high.

On the other hand, I think the consensus estimate for 2012 of just $4.93 a share is too low. I’m projecting something more like $5.40 to $5.50 a share.

I think the recent price of less than $38 a share would be a great buying opportunity—except that with so much fear loose in the market about a slowdown in China, I think you might be able to get the shares more cheaply sometime in the first half of 2012. Do I see $36 again?

As of December 14, I’m leaving my target price at $51 a share by September 2012. (Freeport McMoRan Copper & Gold is a member of my Jubak’s Picks 12-18 month portfolio and my Jubak Picks 50 long-term portfolio.)

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

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