Freeport-McMoRan Could Double On Copper, Oil Recovery And Mining Revamp

In a report published Wednesday, Macquarie Research analyst Aldo Mazzaferro reiterated an Outperform rating on shares of Freeport-McMoRan Inc FCX with an unchanged $22 price target after the company suggested it will raise up to $1 billion in equity by selling shares.

Mazzaferro continued that the company will see "limited dilution" by using its diverse assets – which would include "small slices" of oil & gas, Indonesian mining, and just under 10 percent of its equity.

In addition, Mazzaferro noted Freeport's added liquidity will "supplement" a pending IPO of its Oil & Gas business. Despite the raise, the analyst suggested that the company's net debt will peak this year and return to a free cash flow within a year due to volume, grade and cost improvements.

"We think management is averse to the liquidity raise at current price levels, but the decision shows commitment to preserving recovery potential while working to insure a smooth survival along the bottom," Mazzaferro wrote.

In fact, Freeport's capital raise may not be necessary in the end and depends on commodity prices. As an example, copper pricing may "gain support" from the company's move to streamline mining assets and reduce higher cost output. Despite the fact that the analyst doesn't see copper prices trading north of $3.00 per pound before 2018, internal improvements will prove to be "enough" to drive the stock higher.

Mazzaferro lowered his 2015 and 2016 earnings per share estimates by $0.05 each, to $0.55 and $1.75, respectively. He made no changes to his 2018 earnings per share estimate of $2.80.