Mining Moly Chips Helps Freeport Reach $59

Freeport McMoran (NYSE:FCX) is largely recognized for its extensive copper and gold production operations, which includes its Grasberg mine located at Papua, Indonesia – the world’s largest copper and gold mine in terms of reserves. What goes unnoticed is that Freeport is the world’s largest producer of molybdenum. We look at this business below, which makes up about 5% our  $59.40 price estimate for Freeport’s stock. The company competes with miners such as Southern Copper (NYSE:PCU), Codelco and Newmont Mining (NYSE:NEM).

There is substantial demand for molybdenum…

Molybdenum is largely used as a raw material in the steel industry to manufacture steel alloys. In fact, almost all the molybdenum produced globally is added to steel to make make it stronger, more corrosion-resistant and easier to weld.

According to the company’s annual report for 2010, it sold 67 million tons of molybdenum last year and had more than 3 billion tons of proven reserves of the metal at the end of 2010 – consolidating its claim of being the world’s largest molybdenum producer.

.. and it really doesn’t cost Freeport much to mine it

Freeport’s molybdenum operations are completely located in the Americas with the company conducting mining operations at its Henderson mine in Colorado and selling it from its North and South America copper mines. A substantial part of the molybdenum is actually produced as a by-product of the company’s copper mining operations – making the business highly profitable due to lower associated costs.

And the fact that global steel industry is back on the growth track would indicate growing demand for molybdenum in the years to come. This would only raise the metal’s price in the global market – further adding value to Freeport.

See our full analysis for Freeport McMoran stock