Boston, MA 02/04/2014 (wallstreetpr) – Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) moved into oil and gas production last year in a diversification move. It is surprising considering that the company is more focused on soild metal mining with emphasis on copper and gold.
The Oil Moves:
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s oil moves follow some bad times for copper and gold miners. Gold prices and demand tumbled last year after recording significant gains. The once safe haven for investment is now no longer attractive, many governments have also clamped down on gold imports to control current account deficits. Copper also brought its own share of problems with the Indonesian government trying to boost refining capacity in the country itself. The Indonesian government levied an export tax on raw ore exports, though there is still a lack of clarity if this includes copper concentrate.
In view of this, Freeport’s oil moves may look attractive. In fact, the company could deliver higher production than expected. But, there are still lingering doubts about the oil and gas production venture.
Many Pitfalls Ahead:
If we look at the major pitfalls, the major one is the risk of commodity rates. If Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) wanted to derisk its business from commodity price variations, it may not succeed as prices of oil and gas also vary widely. They may have remained high on sustained demand from emerging economics, but the Fragile Five – as Brazil, Turkey, India, Indonesia and South Africa are now known, have macroeconomic issues of their own. Other emerging economics also are not very strong.
The diversification is also in an unrelated field. The company does not have the expertise in this area of operation. Spreading oneself very thin across sectors may work when the going is good, systematic faults can be covered up. But when all three sectors have rate and demand issues, Freeport may not be able to manage them.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s investors will need to watch the future moves very carefully.
