Key Points
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Freeport-McMoRan offers investors a lower-risk option with strong upside potential in the metals supercycle.
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Copper demand is robust, and supply growth across the industry is constrained.
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Freeport-McMoran is well-positioned with expansion options and an exciting leaching initiative.
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The metals supercycle argument holds that long-term spending on decarbonization, electrification, renewable energy, and AI infrastructure will boost end demand for miners, even as supply constraints remain real and constant. While this presents opportunities for rare earth companies like MP Materials (NYSE: MP) and copper miners like Freeport-McMoRan (NYSE: FCX), there’s a key difference in their risk/reward calculations that favors the latter.
Freeport-McMoRan over MP Materials
If you believe in the metals supercycle argument, loosely sketched out above, then it makes sense to invest in a stock that best manifests that view, rather than one that contains risks over and above that view. In this context, I think Freeport-McMoRan is a better investment than MP Materials on a risk/reward basis for metals supercycle investors.
MP Materials carries substantive risk
MP Materials is a fine and worthy stock, but investors need to carry the execution risk inherent in its construction of a rare-earth magnet manufacturing facility in Northlake, Texas, known as “10X.” On top of that its partnership with the U.S. Department of Defense (DoD) is not without controversy, not least as the DoD has invested in the company and provided it with a 10-year pricing floor guarantee, and, according to the press release, “DoD has agreed to ensure that 100% of the magnets produced at the 10X Facility will be purchased by defense and commercial customers.”
Meanwhile, recent export controls imposed by China will make it harder for the company to acquire rare-earth processing technology.
Copper is a safer bet
On the demand side, copper looks like a safe bet. It’s used extensively in data centers, and the electrification needed to support it. In addition, electric vehicles use multiple times as much copper as internal combustion engines, and copper is also a core part of charging networks and indispensable for connecting renewable energy to the grid. In short, copper lies at the heart of the electrification of everything trend.
On the other hand, ongoing supply constraints linked to long development lead times (more than 15 years from discovery to production), increasing political inflexibility in approving new mines, and declining ore grades are challenging supply growth.
Rising demand and curtailed supply growth point to higher prices down the line, and the good news is Freeport-McMoRan is well placed to benefit from them.
Three reasons why Freeport-McMoRan can win out
First, the company is on track to recover copper production through 2026 and into 2027 following a traffic accident in Indonesia last year, with management forecasting 3.1 billion pounds of copper sales in 2026, rising to 3.8 billion in 2027 and then 4.1 billion in 2028.
Second, management’s cost-effective leaching initiative (recovering copper from existing material stockpiles) targets up to 400 million pounds per annum by 2027 and 800 million pounds per annum by 2030 — a cost-effective way to increase production.
Third, the company has multiple expansion projects in its pipeline, notably in the U.S., where management believes it can expand production (in concert with its leaching initiative) to increase copper production from 1.2 billion pounds to 2 billion pounds by 2030.
All told, Freeport-McMoran presents a lower downside risk option than MP Materials, but still has the upside potential to handsomely reward investors who believe in a long-term metals supercycle.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MP Materials. The Motley Fool has a disclosure policy.
