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Why Freeport-McMoRan Stock Slumped Nearly 14% in December

Matthew DiLallo, The Motley Fool

What happened

Shares of Freeport-McMoRan (NYSE: FCX) fell 13.7% in December, according to data provided by S&P Global Market Intelligence. Weighing on the copper and gold mining company was a slump in the price of copper, which offset the fact that the company finally turned a page in Indonesia.

So what

Copper sold off last month to its lowest level in more than a year as the global economy began weakening due in part to the growing trade war between the U.S. and China. The dispute is already starting to affect China's economy, which reported disappointing data last month. That slowdown will likely affect the demand for industrial metals like copper, which is why its price is falling. This decline will impact major copper producers like Freeport-McMoRan because every $0.10 per pound decline in copper reduces the company's cash flow by about $400 million on an annual basis.

A mining truck driving on a dusty road.

Image source: Getty Images.

In addition to the impact of lower copper prices, Indonesia's Supreme Audit Agency said that Freeport-McMoRan must pay $32 million in royalties. That's after an audit found that the company used thousands of acres of protected forest to deposit waste from its Grasberg copper mine without a permit.

On a more positive note, the company did finally close the sale of a controlling stake in that key mine to an Indonesian company for $3.85 billion. That sale will put an end to an ongoing dispute between the company and the government of Indonesia. In exchange, Freeport-McMoRan not only received a cash infusion to bolster its balance sheet, but the company can continue mining the complex through at least 2031.

Now what

While the slump in the price of copper will affect Freeport-McMoRan's cash flow, the company is in a much better position to handle this slump than it was a few years ago. That's because it sold several assets in recent years, which have shored up its financial situation. However, that doesn't mean its stock price couldn't go even lower if further weakening in the global economy puts more downward pressure on copper.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.