Copper sector M&A inevitable, but not central to Freeport, CEO says | Hotter Commodities

An increase in mergers & acquisitions (M&A) activity in the copper sector was inevitable but did not form a central part of the strategy of Freeport-McMoRan, its chairman and chief executive officer has told Fastmarkets

According to Richard Adkerson, Freeport remains focused on copper, with no plans to diversify, notably because of the US producer’s potential for organic growth through its vast reserves and resources.

“M&A in our business was inevitable. It’s not that companies have a choice between investing or acquiring – there is such a dearth of investable opportunities out there,” he said in an interview on Tuesday, April 25.

“It’s not that companies don’t want [opportunities] – they have been looking for them for years – but, for a variety of reasons, starting with geology, they aren’t there,” he added.

“Freeport has a strategy built around its own internal set of resources, and M&A is not part of that strategy,” he said. “However, the company recognizes that opportunities may arise and, if there is an opportunity to create shareholder value, then it would be prepared to act on that opportunity financially if it’s in a position to do so.”

Adkerson’s comments came while copper, zinc and steelmaking coal producer Teck Resources was attempting to fend off a merger proposal bid from Glencore.

He declined to comment on the Teck-Glencore situation but said again that Freeport’s decision to focus on copper was taken years ago, when it was clear that large, long-life copper projects were few and far between. At the time, Freeport was a single-asset company with the giant Grasberg copper mine in Indonesia, with gold as a by-product.

“We saw China emerge as a major consumer,” Adkerson said, “and it was expected that copper mines would be developed, and demand would be met by new supply. That’s why projections for copper prices were 90 cents per lb long-term.”

Copper price rise

But copper prices rose to $4 per lb within a couple of years, and the anticipated supply response did not come, he said. Freeport acquired Phelps Dodge in 2007 and continued to grow into the large producer it is today.

Freeport produced 4.2 billion lb, 1.9 million tonnes, of copper in 2022, and expected production to remain at a similar level in 2023. The US producer today operates the Grasberg mine as well as operations across South and North America.

“Freeport’s focus has been on its own organic growth; we don’t have a strategy predicated on M&A,” Adkerson told Fastmarkets. “That doesn’t mean we wouldn’t consider opportunities, but we have no compelling need to grow through M&A because we have substantial growth through our own set of assets.”

New copper leaching technology

Those include new leaching technology with the potential eventually to unlock as much as 600 million lb (272,000 tonnes) per year of copper from its stockpiles in the Americas, and from expansions at Safford/Lone Star as well as at its Bagdad concentrator, all in the US state of Arizona, plus major new projects in Indonesia including a smelter and the Kucing Liar mine.

It is also monitoring the Chilean fiscal and regulatory backdrop to determine whether to advance a project there to further develop its El Abra operations.

Adkerson said that the company’s price-to-earnings ratio, or multiple, currently did not reflect the company’s growth potential.

“Our multiple reflects the quality of our assets and our success in execution, and yet, within that multiple, in the company’s view, we get no value for Freeport’s substantial undeveloped reserves and resources,” he said.

“Our goal is to create demonstrable value when we develop those opportunities in the future, and to grow value in the future through that,” he added.

Leaching is a first step toward achieving that, he said, but the company has growth opportunities in mining across its portfolio. Freeport is also working to extend its special mining license in Indonesia beyond 2041, a move that Adkerson said would open up a wide spread of future opportunities on a long-term basis.

“So,” he concluded, “we continue to build on the premium value that we believe we deserve.”

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.

What to read next
The Kingdom of Saudi Arabia’s (KSA) ambitious plan to diversify away from oil and into metals will increase local nickel consumption and fund international mining projects, given recent massive investments in nickel-intense industries
Fastmarkets proposes to amend the name of the MB-AL-0231 Aluminium P1020A all-in price, delivered Midwest US, US cents/lb to clarify that the price is based on the London Metal Exchange cash aluminium price.
Read more from senior analyst Andy Farida on how the price action in LME nickel has played out in the first half of 2024
Tight aluminium scrap availability, the increase in container costs, sluggish demand in the US and the US market’s current indifference to rising premiums in Europe and Asia were the top subjects discussed during the Harbor Aluminum Summit that took place in Chicago on June 4-6
Germany-based copper recycling and non-ferrous metal provider Aurubis has started commissioning their secondary smelter in Augusta, Georgia, and could eventually introduce black mass recycling to the facility
Base metals on the London Metal Exchange were mixed in morning trading on Monday June 10, with three-month prices lacking direction amid thin traded volumes due a public holiday in China, the largest market for base metals