Outlook for Freeport’s Copper Sales from African Mines

Freeport McMoran Copper (NYSE:FCX) is a miner of copper, gold and molybdenum. It has operations in North and South America, Indonesia and Africa, and competes with other miners such as the Southern Copper (NYSE:PCU), Codelco and Newmont Mining (NYSE:NEM). The company derives the majority of its revenues from copper sales. Freeport started operations in Africa in 2009, and from 2009 to 2010, its copper sales increased from 130 million pounds to 262 million pounds.

We expect production to increase as the plant hits full capacity. In addition, the market is speculating that Freeport will likely bid for acquiring Lundin Mining Corp (TSX:LUN). If this deal goes through, this will give a boost to Freeport’s revenues. While we anticipate the Freeport’s copper sales from African operations will be rise to 790 million pounds by the end of our forecast period, Trefis members predict the sales will cross 860 million.

We currently have a Trefis price estimate of $63.42 for Freeport McMoran Copper’s stock, about 34% above the current market price of $47.34.

Exploiting Strong Reserve Base at African Mines

As Freeport’s African mines start operating at full capacity, we expect copper production to increase. Freeport’s Copper reserves in Africa stood at 8.4 billion pounds as of December 2009. Strong reserves coupled with increased plant capacity are expected to help increase the copper sold from the region.

Freeport Could Benefit from Lundin Mining

Lundin in a Toronto-based miner that produces copper and zinc through its operations in Sweden, Ireland, Spain, Portugal, Congo and Russia. There is stiff competition among miners to take over this company. It was agreed that Lundin and Inmet Mining Corp would merge after Lundin accepted a takeover bid in end of January 2011. But recently Equinox Minerals (ASX:EQN), which owns and operates Africa’s largest copper mine at Lumwana, Zambia, made a counter offer raising Inmet’s bid by 14%.

There is news that Freeport is expected to participate in the contest for Lundin, as both the companies jointly own a significant stake in a copper mine in southern Congo. Freeport’s share of the $2 billion mining project is 56% with Lundin’s contributing 24%. Lundin produced about 110,000 tonnes (about 240 million pounds) of copper in 2010, including its share of the Tenke mine in Congo. Although this figure is minuscule compared to Freeport’s 3.85 billion pounds of copper for 2011, the increased output would have a significant positive impact on Freeport’s revenue. (See Should Freeport Pursue Lundin Mining?)

Trefis Community Forecast

Trefis members forecast Freeport’s copper sales (in pounds) will increase from near 319 million in 2011 to 865 million by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from 288 million to 790 million during the same period. The member estimates imply a slight upside to the Trefis price estimate for Freeport’s stock.

See our complete analysis for Freeport McMoran Copper’s stock.