Electrification And Decarbonization Will Drive Global Copper Demand

Key Takeaways

• Rising global copper demand and supportive U.S. policies position the company for revenue growth and premium pricing opportunities.
  
• Expanding production capacity and cost reduction initiatives strengthen margins and enable increased capital returns to shareholders.
  
• Exposure to geopolitical, regulatory, operational, and technological challenges may undermine Freeport-McMoRan’s earnings growth, profitability, and ability to sustain long-term production.

Catalysts

Engages in the mining of mineral properties in North America, South America, and Indonesia.

• Freeport is poised to benefit from the accelerating global shift towards electrification and decarbonization, including widespread adoption of electric vehicles, renewable energy installations, and grid upgrades, which are already driving structural growth in copper demand and will support higher copper prices and revenue expansion over the coming decade.
  
• The company’s dominant U.S. copper production footprint is strategically aligned with government efforts to diversify and reshore critical mineral supply chains; ongoing U.S. policy developments such as potential tariffs, critical mineral incentives, and permitting reforms could translate into premium pricing for Freeport’s copper, direct incentives, and a higher share of new infrastructure contracts, providing significant upside to EBITDA and cash flows.
  
• The ramp-up of the Grasberg underground mine and ongoing expansions—including the Kucing Liar development and brownfield projects in the U.S. and South America—will materially increase Freeport’s production volumes and economies of scale, setting the stage for sustained growth in revenues, higher operating leverage, and stronger EBITDA margins through the second half of this decade.
  
• Sustained investment in innovation, automation, and large-scale low-cost leach initiatives are expected to deliver substantial reductions in unit costs, boosting net margins and positioning Freeport as one of the lowest-cost, highest-margin producers in an industry facing rising cost pressures and declining ore grades.
  
• Freeport’s disciplined capital allocation, strong balance sheet, and relentless focus on cost management are driving robust, forecasted free cash flow generation, enabling both heavy investment in future growth projects and an expanding capital return program—including higher dividends and accelerated share buybacks that are expected to drive growth in earnings per share.

Freeport-McMoRan Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Freeport-McMoRan compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Freeport-McMoRan's revenue will grow by 10.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.1% today to 16.0% in 3 years time.
• The bullish analysts expect earnings to reach $5.3 billion (and earnings per share of $3.68) by about May 2028, up from $1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, down from 30.9x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.6x.
• Analysts expect the number of shares outstanding to decline by 2.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Freeport-McMoRan Future Earnings Per Share Growth

Risks

• The increasing risk of geopolitical instability and protectionist policies, such as tariffs or export restrictions in major copper-producing regions, could disrupt Freeport-McMoRan’s global operations and supply chains, potentially leading to higher operating costs and reduced stability in revenue streams.
  
• Heavy reliance on aging and politically sensitive mining assets in Indonesia and South America leaves Freeport-McMoRan exposed to the risk of future permit revocations, nationalization, or increases in royalties and taxes, which could significantly impact long-term EBITDA and net margins.
  
• Escalating operational costs driven by resource depletion, declining ore grades, and the need for greater environmental compliance, particularly in mature U.S. assets, may steadily erode net margins and dilute free cash flow, undermining earnings growth over time.
  
• Accelerating technological advancements in metals recycling and rapid adoption of alternative materials could diminish future demand for primary copper, potentially suppressing both revenue growth and pricing power as global decarbonization efforts progress.
  
• Intensifying regulatory and ESG pressures, combined with heightened water scarcity and increasing environmental activism, may lead to longer permitting timelines, higher compliance and litigation costs, and possible project delays or cancellations, all of which could constrain Freeport-McMoRan's production growth and negatively affect long-term profitability.

Valuation

• The assumed bullish price target for Freeport-McMoRan is $55.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Freeport-McMoRan's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $26.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $33.1 billion, earnings will come to $5.3 billion, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 7.1%.
• Given the current share price of $37.92, the bullish analyst price target of $55.0 is 31.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.