By any standard, copper and gold prices have gone on a nice run since global markets bottomed out in early 2009. The red metal has ridden robust demand growth from industry–primarily in emerging markets–to a near triple. The Midas metal, meanwhile, has nearly doubled in price, as investors have scrambled for protection from post-2008 hyper-expansionary monetary policy.

Rising copper prices have predictably increased resource nationalism in many countries. The reactions by governments have ranged from de facto expropriation–as in the Democratic Republic of the Congo with First Quantum Minerals’ (TSX: FM, OTC: FQVLF) concessions–to increased royalties/taxes and higher barriers to foreign ownership.

Dealing with resource nationalism comes with the territory as companies have to go ever-further, ever-deeper, ever-more-dangerously to find needed reserves. In this regard, Metals and Mining Portfolio holding, Freeport McMoRan Copper & Gold (NYSE: FCX) stacks up quite well. A third of the company’s reserves are located in its home country, the US, where mines are rich in molybdenum, which represent a growing portion of profits. Much of the rest of the company’s reserves are found in Chile, Indonesia and Peru, where Freeport’s roots are also deep. Meanwhile, First Quantum’s troubles were Freeport’s gain; the company was able to get a position in the Congo with limited financial risk.

Copper remains an indispensable element for any nation trying to grow its economy. Chinese moves to stock and destock inventories continue to rile global market. But global demand growth has risen roughly 16.4 percent per year over that time. And the International Wrought Copper Council anticipates growth of 8.4 percent for the next few years, as demand in countries such as India continues to rise.

As for gold, despite its major move up over the past decade, an ounce still sells for half the inflation-adjusted 1980 peak of about USD3,000. That price point has never been our forecast for the yellow metal. But the comparison demonstrates that there’s more upside to come, especially as global central banks are forced to adopt an accommodative monetary policy.
Molybdenum, a key element used to strengthen steel, is certain to enjoy higher demand, due in part to the growing number of energy wells that must operate under extreme pressures below the ocean floor.

The strength in copper and gold has boosted Freeport’s bottom line. The company’s first-quarter earnings per share soared to $1.57, from $1 the previous year. Revenue surged 31 percent, fueled by a 26 percent jump in copper sales. That figure is even more impressive when one considers that copper volumes in Indonesia and North America dipped 3.5 percent due to timing of shipments.

Freeport sold its gold at an average realized price of USD1,399 during the quarter, up 26 percent from 2010. It sold its copper for USD4.31 per pound, also a 26 percent increase. And the company sold 17.6 percent more of its third major product–molybdenum–while enjoying a 19.9 percent increase in price. Freeport is now the world’s largest producer of molybdenum.

Those were exceptionally bullish numbers. And second quarter results–to be released around July 21–should follow a similar script.

There was even more good news for investors. First, management did what every dividend-paying mining company does when business is good and its outlook is even better. Freeport boosted the regular quarterly payment to 25 cents a share from 15 cents and declared a special dividend of 50 cents per share.

Second, the company increased its forecast for 2011 output to 3.9 billion pounds of copper and 1.6 million ounces of gold, up from 3.85 billion and 1.4 million, respectively, at the start of the year. That’s the result of management’s aggressive focus on growing output of copper and gold, which occur together at its major mines. The company is now mining underground at its Grasberg mine in Indonesia, a major step to extend the life of the reserve.

Output growth has been at the root of Freeport’s strategy since copper prices began their long climb during the last decade. There have been plenty of ups and downs along the way. The biggest decline occurred in 2008 when commodity prices plunged across the board and the company pulled in its horns at higher-cost mines. But through it all, management has stuck to its guns and now expects a 30 percent boost in output through 2015, with $2.5 billion in capital spending targeted for this year alone.

Freeport isn’t even facing the cost pressures that many of its rivals are experiencing. That’s in large part the result of its multi-year strategy to spend capital on developing new mines. Nor is debt a pressing concern for Freeport, as the company has no significant maturities until 2017.

Finally, Barrick Gold’s (NYSE: ABX) successful buyout of smaller producer Equinox Minerals this spring attached a value to copper producers that equates to a price of far more than USD100 for Freeport stock. Freeport is no small fry at USD47.6 billion in market capitalization, but the company is far smaller than the sector’s true giants such as BHP Billiton (NYSE: BHP), which has a market cap of USD226.3 billion. Brazil’s Vale (NYSE: VALE) has a market cap of USD163.1 billion, while Rio Tinto (NYSE: RIO) comes in at USD141.7 billion.



Source: Bloomberg