Freeport-McMoRan vs. Newmont: Why Is Only One Gaining?

Freeport-McMoRan’s stock (NYSE: FCX) is down 23% so far in 2020. But wait a minute, close rival Newmont’s stock (NYSE: NEM) has increased 30% in 2020 so far. If we compare the stock price trends for these mining giants over recent years, we can see that FCX’s stock price has declined 23% from $13 at the end of 2016 to $10 as of 11^th June 2020. What is interesting to note is that Newmont’s stock price increased significantly by 75% during the same period. So, despite both companies dealing in similar products – gold and copper – what has helped NEM achieve a much superior stock performance vis-à-vis FCX? Our dashboard Freeport-McMoRan vs. Newmont: Does The Stock Price Movement Make Sense? has the underlying numbers.

Newmont’s revenues increased by 32% from $7.4 billion in 2017 to $9.7 billion in 2019, which compares favorably with FCX’s revenue which decreased 12.2% during the same period. NEM’s revenue rise was primarily driven by higher production and shipments, benefiting from the acquisition of Goldcorp in early 2019, while FCX’s revenue decline has been a reflection of negligible gold and copper output from its Indonesian operations on account of the ongoing 2-year transition of the Grasberg mine from an open pit to underground mine. Though Freeport-McMoRan’s net income margin has been significantly higher than Newmont’s in 2017 and 2018, due to better quality grades and higher revenue, Newmont’s margin increased sharply from 5.2% in 2018 to 29.6% in 2019 due to the one-time gain from the formation of a Nevada joint venture with Barrick Gold. In contrast, FCX reported losses with a margin of -1.3% in 2019 due to a sharp drop in shipments. The P/E multiple of both companies is not comparable due to negative earnings reported by FCX in 2019.

How Do Businesses Of Freeport-McMoRan and Newmont Compare

Let’s have a closer look at the core business prospects. Newmont’s operations include gold, copper, silver, and other by-products like lead and zinc. FCX’s operations include mining of gold, copper, molybdenum, and cobalt. Despite almost similar products, what’s striking is the revenue mix of these two companies.

Newmont’s revenues are deeply concentrated with gold, with the yellow metal contributing 93% of the total revenues in 2019. With the acquisition of Goldcorp and the Nevada JV, this contribution is likely to go up to 94% in 2020. In comparison, FCX got only about 10% of its total revenue from gold, which is expected to be about 13% in 2020. A slowdown in economic and industrial activities and expectations of a global recession following the outbreak of coronavirus this year has increased gold’s value as a hedging instrument. Global gold prices have increased from about $1,500/ounce at the beginning of 2020 to almost $1,700/ounce currently due to higher demand. With rising investment in the yellow metal by major central banks and expectations of interest rates heading south, gold prices already saw a sharp rise in 2019. This trend was further boosted by the current COVID-19 crisis.

Freeport-McMoRan’s revenues are mostly concentrated by copper, which made up 62% of FCX’s revenues in 2019. In contrast to gold, the effect of the current crisis has been completely opposite on copper prices, which declined from $2.80/pound at the beginning of 2020 to $2.10/pound in March 2020, before recovering to over $2.50/pound currently, which is still lower than the beginning-of-the-year price. This drop was mainly due to expectations of lower demand from automobile and construction players as the economic activity slows down.  Thus, the current crisis has in fact helped Newmont due to most of its revenue coming from gold, while FCX seems to be a laggard currently as it is not able to take advantage of the surge in gold prices as all of its gold output comes from Grasberg, which is currently undergoing a transition, while copper revenue is also declining.

If there are no signs of abatement of the coronavirus crisis by the end of June 2020, Freeport-McMoRan’s stock could see a sharp drop from its current level. Though Trefis has a fair price estimate of $10 for FCX’s stock, our worst-case scenario shows that FCX’s stock could drop to $4.

On the contrary, Newmont’s valuation works out to $65 per share, higher than its current market price of $56.

Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams