One way that mining companies have tried to deal with rising costs and declining demand is to acquire oil and gas assets that are expected to help with revenues and profits now and boost value in the longer term. The prime example is Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), which just completed its twin acquisitions of Plains Exploration and Production Co. and McMoRan Exploration Co.

Freeport coughed up $19 billion in assumed debt, $5.5 billion in cash, and 91 million new shares of stock to get back into the energy business. Before the acquisition Freeport and Plains owned 36% of McMoRan, which had been spun out of Freeport in 1994.

The company held its investor day program yesterday and analysts from Nomura and Barclays have reiterated their positive views on the company, with the Barclays analyst noting “the long-term volume growth potential of the new Freeport, an impressive feat given it operates in a volume-constrained industry,” according to a report at Barrons.

And while it’s true that the storing oil, gas, gold, and copper in the ground tends to boost long-term value because prices typically rise over time, the other side of that coin is that costs typically rise as well. Freeport expects to use its free cash flow to reduce its debt from current levels of around $20.8 billion to around $12 billion in the next three years. That’s pretty aggressive.

But investors seem to like what they’ve heard. Shares are up about 0.8% today at $27.03 in a 52-week range of $26.37 to $43.65.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.