Inside A Slaughter: Why Freeport McMoRan (FCX) Lost 16%

Trading in the overall market was relatively normal yesterday; your average worry about the fiscal cliff and Europe snuck their way in, but there was nothing out of the ordinary. That is, until you looked at Freeport-McMoRan’s (FCX) stock for the day. This major copper and gold producer was absolutely slaughtered, as investors participated in one of the nastiest sell-offs we have seen in recent weeks. But the  massive drop had nothing to do with the commodities they produce, but rather a questionable business move that left many scratching their heads [for more copper and gold news subscribe to our free newsletter].

Inside the Sell-Off

Let’s start with the sheer volume of this move. As of yesterday, FCX traded around 14 million shares on an average day; Wednesday’s session watched over 153 million shares exchange hands, more than ten times the average volume. The stock price dropped from $38.28 to $32.16 during the day, representing losses of 15.99%. But the hit, unfortunately, has yet to stop. As of the first 30 minutes of trading this morning, the stock traded more than 18 million shares (eclipsing their new average daily volume of 17.1 million shares) and was down nearly 4%. FCX is currently at its lowest point in the trailing 52-weeks.

So why the sudden apocalyptic sell-off? Yesterday, Freeport announced that they would be acquiring McMoRan Exploration and Plains Exploration & Production. This move was seen as highly controversial, one of the largest shareholders of the stock said that the management of Freeport had broken shareholder trust. “I haven’t heard anything on this call that in any way justifies why these companies should be put together,” said Evy Hambro, a managing director at BlackRock, during a conference call to discuss the deal.

Though FCX was subjected to an absolute slaughter,both McMoRan Exploration (MMR) and Plains Exploration & Production (PXP) had astonishing trading sessions. MMR hit its 52-week high by jumping from $8.46 to $15.82, a gain of 87%. That stock also traded more than 86 million shares on Wednesday, crushing its average of around 4 million shares. PXP shot up from $36.05 to $44.50, a gain of 23.4%. PXP traded nearly 57 million shares though it had been averaging under 4 million shares prior to the acquisition [see also How To Lose Money Investing In Commodities].

What To Do With FCX?

The big question that investors need to ask themselves is whether or not this will have a marked impact on the long-term health of the company. After all, we have seen a number of acquisitions looked on unfavorably by the market, only to watch the stock regain lost ground once the news blows over. If you fall under that camp, FCX is at an absolute steal right now, and it may be time to either add to or start a position in the stock.

However, if you are less than a fan of the new deal and see long-term ramifications for FCX, you are in a bind. Selling right now will certainly protect you from further losses, but when a sell-off of this magnitude occurs, there is typically a small recovery in price shortly afterwards. It may be worth placing a stop-loss at your absolute minimum and waiting out to see if FCX can gain back some lost ground before you exit.

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Disclosure: No positions at time of writing.

This entry was posted in Commodity Futures, Commodity Producers, Copper, Gold, Industrial Metals, Precious Metals and tagged , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

2 Responses to “Inside A Slaughter: Why Freeport McMoRan (FCX) Lost 16%”

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  2. [...] Even though it’s branching out into other areas of commodity space–like energy production–Freeport-McMoRan Copper & Gold (FCX) is still one of the largest producers of the metal on the planet; in fact, it’s the largest publically traded one. The company’s Grasberg mining complex in Indonesia is the world’s largest copper and gold mine in terms of recoverable reserves. FCX produced 1.44 million metric tons of refined copper in 2010, equal to 9% of the world total. That makes it a prime play on housing continued recovery [see also Inside A Slaughter: Why Freeport McMoRan (FCX) Lost 16%]. [...]

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