Copper Tariff Boosts FCX Stock Target 33%

In response to the recent announcement by the U.S. President of a 50% tariff on copper imports, the COMEX copper price has surged to unprecedented levels. This development has prompted Morgan Stanley to issue a research report, highlighting Freeport-McMoRan Copper & Gold (FCX.US) as a potential safe haven within the industry. The bank has significantly raised its target price for FCX from $42 to $56, reflecting the anticipated strength in commodity prices and economic conditions.

Morgan Stanley's analysis, led by Bill Peterson, emphasizes three key advantages of FCX: its superior operational performance, the cost benefits derived from the gold byproducts at the Grasberg mine, and a higher proportion of U.S. business compared to its global peers. The bank notes that for every $0.10 increase in the COMEX copper price premium over the LME price (currently at approximately $1.06 per pound, a 25% premium), FCX stands to gain an additional $135 million in annual EBITDA and operating cash flow. This benefit is primarily due to the tax and royalty exemptions enjoyed by its U.S. assets.

Given the current capital expenditure guidance and FCX's cautious project approval strategy, Morgan Stanley anticipates that the company will continue to enhance shareholder returns, following the $55 million stock buyback in the first quarter. The bank also suggests that even if the COMEX premium does not fully reflect the 50% tariff expectation, FCX will still be a relative winner in the short term. This outlook is supported by the bank's upward revision of the target price, which now stands at $56, reflecting the anticipated strength in commodity prices and the easing of economic recession risks.

In addition to FCX, Morgan Stanley also recommends an overweight position in Teck Resources (TECK.US), advising investors to monitor the operational performance of its QB2 project. The bank also expresses optimism about Ivanhoe Electric (IE.US), a smaller company focused on U.S. copper mining, despite its early stage of development.

U.S. Bank analysts have identified the two companies most sensitive to COMEX copper prices as FCX and Southern Copper Corporation (SCCO.US). FCX is expected to derive 36% of its revenue from U.S. copper operations by 2025, while SCCO is projected to have a 40% contribution from the same source. Although Hudbay Minerals (HBM.US) currently has no U.S. copper revenue, its Copper World project in Arizona is expected to change this dynamic. By 2030, the company's U.S. copper revenue is anticipated to account for 30% of its total revenue, following the project's commercial production.