Freeport McMoRan Copper & Gold (NYSE: FCX) is a value when compared to its peers. But subscribers often ask why the stock hasn’t performed better, particularly in the past year. The company’s share price has climbed to more than five times its December 2008 low. Thus far in 2011, however, Freeport is off by more than 15 percent.

One reason for the decline is that global copper prices have fallen. Mining stocks’ profits are leveraged to metals prices both through output and realized selling prices. Although copper prices nearly tripled from late December 2008 to mid-February this year, they’ve since backed off by nearly 10 percent.

Perhaps more important for Freeport’s share price, mining stocks are very leveraged to the perception of where metals prices are headed. Until a few months ago, many investors believed that the global economy was gradually gaining strength and that demand for natural resources would continue to rise. At the time, many economists even worried that rising commodity prices would trigger inflation, especially in the developing world, forcing governments to aggressively slow economic growth.

What a difference a few months make. Today, weaker-than-expected US economic data, particularly regarding unemployment, has helped reverse expectations of accelerating US economic growth. Economists now worry that the US could relapse into recession.

Meanwhile, the bad news continues to flow from Europe and many fear that a potential Greek default could cascade through global credit markets, just as US mortgage-backed security defaults did in 2008. Finally, investors have begun to worry about slowing growth in China and its impact on global demand for natural resources.
The result has been an across-the-board selloff in natural resource companies, including Freeport. The stock has fallen from the neighborhood of USD60 per share at the beginning of the year to barely USD50 now.

That’s to be expected in a business like this one. And Freeport’s fate in the market is hardly unique in recent months.

A rebound in Freeport’s share price will require the resolution of at least some of these vexing global issues. There is some reason to be optimistic about Europe, where EU member governments appear committed to finding a solution to Greece’s financial crisis. Meanwhile, other European nations are enjoying renewed confidence in their economic futures.

Other issues could take longer to resolve. But regardless of the timing, investors now have the opportunity to buy into the world’s second-largest producer of copper, the largest producer molybdenum, and a substantial gold producer, all at a substantial discount to the value of the company’s reserves.

Since our initial entry point in late November 2010, we’ve seen a sizeable gain evaporate to a total return of roughly 2.8 percent. Meanwhile, Freeport has become considerably more valuable in terms of both reserves and output.

The path thus far has been marked by share price volatility. And there’s no reason to expect we won’t see more ups and downs in the coming months. Freeport’s value, however, is undeniable. Buy Freeport McMoRan Copper & Gold up to USD60 if you haven’t already entered a position.