Freeport-McMoRan is poised to benefit from Trump's tariff on copper against competitors with few options
Freeport-McMoRan's annual profit could increase by $1.6 billion if President Donald Trump’s proposed copper tariff is implemented. This benefit would be driven by Freeport-McMoRan's position as the United States' largest producer, with greater expansion options than its competitors.
Freeport, based in Phoenix, is responsible for 60% of the U.S. output of copper. Since the 19th century it has developed U.S. mining projects with decades of growth without the need of new permits.
The stubborn reality of American mining has caused other companies to struggle: it takes years to construct a U.S. Mine. Trump announced on Tuesday a 50% tariff for imports of metal used in electronics, construction and almost every other sector of the economy. If Washington imposes a tariff on copper by Trump's start date of August 1, it would be the first ever.
After the initial announcement, on Tuesday, that pushed Freeport stocks up by 5%, questions were raised about where Trump plans to obtain the metal. This is due to long-standing obstacles to building mines, smelters and limited options other than Freeport's U.S. Copper Mines.
"The Trump administration's longer-term goal may be to have the U.S. be self-sufficient in its copper production, but mines are too slow to develop to achieve this in less than 10 years," said Jefferies Analyst Chris LaFemina. U.S. copper imports are mainly from Chile, Canada and Peru. China is the largest copper smelter in the world, and its demand will increase by at least 60% between 2050 and 2060, according to International Energy Agency.
Jefferies identified Freeport as the company that is expected to benefit the most from Trump's tariffs. Freeport, which controls four of the largest U.S. mines of copper, sells its U.S. products inside the country more than any other firm.
The company is able to increase its bottom line by selling the copper at U.S. Comex prices. These have increased since Trump suggested tariffs for the first time in February.
Freeport estimated in April that it would make a profit of at least $850 million per year if a copper tariff were to take effect.
The April estimate was made based on U.S. Copper prices of $4.84 a pound. This is a premium by about 60 cents compared to the benchmark LME copper price. Freeport said that the premium has nearly doubled, and now amounts to $1.6 billion more in annual EBITDA. The company earned $10 billion EBITDA by 2024.
Freeport has declined to comment until it can examine the details of the tariff plan.
Imports are on the rise
According to U.S. Geological Survey statistics, U.S. refined imports of copper have increased by more than sixfold in the last two years, despite a 20% drop in production. Within its borders, the country has enough copper to last nearly 30 years. Mines must be expanded or replaced as they age. Mines are unpopular in many parts of the United States. This leads to long-winded regulatory decisions. According to a study by S&P Global, it takes on average nearly 29 years for a U.S. mining project to be completed. Zambia is the country that takes the longest.
Mines are more complex than factories that produce furniture or consumer goods. The permitting process can take a decade or longer, and they can face opposition from conservation or indigenous groups. Construction can last more than three-years.
The proposed U.S. Copper projects by BHP, Rio Tinto, Northern Dynasty Minerals, Antofagasta, and others, have been delayed more than 10 years. There are only three copper smelters in the U.S. to make wires and pipes. One has been idle since 2019. In 1995, there were seven copper smelters in the U.S. Freeport CEO Kathleen Quirk said in March that levies can affect the global economic. Quirk stated, "We are the poster child of American copper production." Freeport plans to leach the copper from waste rock in its U.S. mining operations, which was previously deemed worthless. Leaching could increase Freeport's U.S. copper production by 800 millions pounds per year by 2027.
The company has room to expand at several of its U.S. mining operations, including Bagdad in Arizona and Lone Star. Freeport announced in March that it may expand its U.S. Smelter. Rio Tinto is expanding the Kennecott Copper Mine in Utah, the world's largest open-pit copper mine. Rio Tinto is also attempting to develop Resolution Copper in Arizona but has faced Indigenous opposition.
Rio has stated that it is "strongly motivated to invest in American copper and we see opportunities for growth in our business in the United States."
KGHM Lundin, and Grupo Mexico comprise the smaller U.S. producers of copper. Trump's supply-side lever could be to prohibit the export of copper scrap. Copper can be recycled, just like other critical minerals. The U.S. exported more than 500,000 tons of scrap copper annually, which is more than the annual production from the largest U.S. mine. (Reporting and editing by Veronica Brown, Rod Nickel and Veronica Brown; Additional reporting by Polina Devitt in London)
(source: Reuters)
