Striking Gold With Freeport-McMoRan
Minerals and mining is a long-term global bull market, and Freeport-McMoRan is the way to play it, Cramer said during Wednesday's Mad Money.
All week he's highlighting five sectors that aren't bogged down by the U.S. economy and should continue to surge well into the future. Cramer already covered aerospace and defense and oil this week. Keep watching Thursday and Friday for the next two. (Check out Cramer's new book, Stay Mad for Life, for even more information on these five bull markets.)
Minerals and mining is worth owning for a couple of reasons, not the least of which is the insatiable demand of China and India for the raw materials needed to build a modern economy. There's also a tremendous amount of consolidation going on in the sector. (Xstrata's CEO expects more.WSJ subscription required.) And as Cramer said, where there are takeovers, there are stocks that go much, much higher.
Freeport-McMoRan is the world's largest producer of copper. That's a good position to be in considering there's no more easily found copper left in the world, Cramer said. Freeport will be the only company to bring in any meaningful increase in copper supply in the next few years thanks to a mine expansion in Chile and another opening in the Democratic Republic of Congo.
FCX just announced it will reopen a molybdenum mine with the goal of producing some time in 2010. Moly is a critical element in making steel, another material China craves. (Check out Cramer's speculation moly play.) Cramer expects the mine, which should give FCX 15% of the world's market, to pay itself off in two years even if the price of moly drops from $30 to $10, which is a pretty pessimistic view, he said.
Freeport has plenty of gold mines as well. One of the company's best is the Grasberg mining complex, in Indonesia. FCX owns 90% of Grasberg and there's about 22 years of gold left in it.
Massive cash flows have allowed Freeport to pay off the debt it took on to buy Phelps Dodge. And FCX has committed money to its shareholders by boosting the dividend to $1.75 from $1.25 and initiating a 20 million share buyback program.
There's always the chance the Freeport-McMoRan could get bought out just like any other company in the sector. Cramer doesn't doubt it. But it'd be a shame, he said, to enjoy a quick profit when the upside in this company should keep the profits coming for a long time to come.
Jim's charitable trust owns Freeport-McMoRan.
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