Freeport-McMoRan (FCX)

Total return at 5 years: -15.7%/year = -17.1% appreciation + 1.4% dividend. The target price ($29) is ex-dividend; the $3 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $49 · Multiples $26) is below the market price ($73).

Today — expensive, no margin of safety: at $73 trades ~182.9% above its value discounted to today (~$26); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$16.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($73) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (11.6%/year) above our base case (3.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$5.2 bn of owner earnings in year 5 (vs ~$3.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad atribuible (P/E mid-cycle). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: the year-0 level is the real TTM (revenue $25.9bn as of Jun 2026, built by levels from the Q2'26 8-K on the same metric as the record), and year-0 earnings are the real TTM (earned at spot copper with depressed volume — two offsetting distortions, both disclosed); realized copper in Q2'26 was $6.17/lb and the company itself assumes $6.00 for the second half, against a mid-cycle of $4.50; a commodity price at the top does not re-anchor the mid-cycle, so the path for years 1 through 5 and the terminal stay as they were and only year-0 moves. The normalization to mid-cycle copper $4.50 converges along the path, and the terminal being valued is indeed mid-cycle. Cyclical copper miner (price-taker): valued on P/E over earnings attributable to FCX — net of the ~47% NCI in PT-FI, not consolidated — at a mid-cycle copper price of ~$4.50/lb, the midpoint of the normalized range and not the spot ~$6 at historic highs. Normalized attributable earnings reach ~$3.45bn by 2030 (mid-cycle copper + Grasberg recovered after the September 2025 mud rush + growth) × ~18x P/E (generous). The P/E delivers equity directly (net income is already post-interest and post-NCI) → there is no EV→equity bridge; net debt ~$5.3bn lives in the DCF. Cash does not accumulate: a cyclical redeploys the flow into growth capex. At mid-cycle, the 5-year value is ~$43 < price ~$60 → the entire thesis rests on copper staying near its peak; downside-skewed.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $29 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $73, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $29 in 5 years plus $3 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $26. Against the current market price ($73), the margin of safety is -182.9% (trades above the maximum → a premium is paid) and the total return at that price would be -15.7% annually.

• Multiple vs mid-cycle. Trailing P/E distorted by Grasberg's depressed earnings. At disciplined mid-cycle (copper $4.50) normalized attributable income × 18x gives ~$29 — well below the price.
• Cycle-peak price. Copper and gold at historic highs (copper ~$6/lb; gold with a peak of $5,405/oz in January 2026). The market is paying for spot + full Grasberg recovery. Extrapolating peak × a high multiple would be concatenated optimism (the XOM rule).
• Margin of safety. Base -17%/year price (mid-cycle) < 0 → strongly negative margin. Downside-skewed (the thesis rests on copper staying at highs). The P/NAV at $3.25 copper is the floor.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (95%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cost (cost curve). Real advantage: Grasberg with negative copper cash cost (gold credit), Cerro Verde/Morenci low-cost. Among the world's lowest-cost producers — key in a commodity.
• Cash / balance sheet quality. Solid balance (investment grade stable, Baa2/BBB/BBB-). But FCF < net income (reinvests heavily in Grasberg + growth). And NCI takes ~47%. CFROIC (~10.5%) sits just below ROIC (~11%): maintenance capex anchors to actual depreciation and the rest is treated as growth capex — the multi-year expansion of Grasberg underground, not yet showing in flat earnings — with working capital that rose moderately from inventory buildup.
• Reserves / life. Decades of reserves (78.6bn lb Cu net-of-NCI) valued at a conservative copper price ($3.25/lb). Reserve life + the pipeline are the long-term value — not one year of earnings.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A copper miner's engine is commodity price × volume minus net cash cost. FCX is a price-taker leveraged to copper (75% of revenue; gold 15% and molybdenum 8% as byproducts that lower cash cost — at Grasberg gold credit makes copper cost negative). Copper and gold are at historic highs (copper ~$6/lb; gold with a peak of $5,405/oz in January 2026) from the electrification/AI supercycle + Grasberg's own supply shock → valued at mid-cycle (copper ~$4.50, midpoint; not spot), with volumes normalized toward the staged restart the 10-K anticipates for 2Q-2026, with no return-to-full-capacity date declared by the company.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Volume growth (Kucing Liar, Bagdad, El Abra, leaching) is real; revenue/earnings follow the cyclical copper price.
• Growth driver. Grasberg recovery (staged restart the 10-K anticipates for 2Q-2026, with no company return-to-full-capacity date) + real pipeline (+50% volume over the decade) at low-cost assets. But at mid-cycle flat price — volume grows, not necessarily earnings.
• Cyclicality. Earnings depend on copper. Spot ($6) is well above mid-cycle ($4.50) — reversion likely. Grasberg depressed until the staged restart completes.

• Relevant in 10 years (recurrence). Copper is essential for electrification/AI/renewables — growing structural demand. FCX's assets (long-lived) will keep being needed. High relevance.
• Pricing power. None — it is a commodity price-taker. The advantage is low cost (Grasberg), not price.
• Moat and its direction. Narrow moat (commodity) but of irreplaceable assets + low cost. Structural direction favorable (management describes favorable demand, without quantifying a supply deficit), but degraded near-term by the Grasberg incident.
• Cyclicality. Intrinsically cyclical (follows copper). The price is at all-time highs — today's earnings are not representative of mid-cycle. High operating leverage.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.6x
• ✓Interest coverage (EBIT / interest)18.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 95% of ROIC
• !Value creation (ROIC − 10% bar)+1pp
• !Malinvestment test (capex vs incremental ROIC)Strong investment mode 1.9x
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Solid balance. Consolidated total debt ~$9.4bn (93% at fixed rate), cash ~$3.8bn; measured excluding PT-FI smelter debt (~$3.2bn) the company's 'net debt' (~$2.3bn) is below the $3.0-4.0bn target. Investment-grade rating (Baa2/BBB/BBB-), stable outlook: solvency is not the case risk.
• The risk is the cycle, not solvency. Results follow the copper price with high operating leverage; a strong balance sheet does not protect against the commodity price, which today is at all-time highs.
• Non-controlling interest (~47%). Nearly half of consolidated income belongs to the non-controlling interest in PT-FI in Indonesia: income attributable to the common share is ~half of the consolidated figure, and that is what must be valued.
• Cash flow below earnings. FCF sits below net income because the company is reinvesting heavily in Grasberg's recovery and the growth pipeline; this is growth capex, not deterioration.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. No founder control; robust ownership guidelines (6x salary), all exceeding target. Hedging/pledging prohibited. Alignment by comp design.
• Capital allocation. Solid capital discipline (net debt target, deleveraged balance sheet). Reinvests in growth + variable dividend + buybacks. The projects require copper ~$4.00/lb.
• Succession / continuity. Orderly internal succession (Quirk, former CFO, succeeded Adkerson, former CEO, who remains Chairman). Strong continuity.

• Appears cheap: the market punished the Grasberg incident, with copper and gold at historic highs — appears disconnected.
• Is not cheap in reality: copper and gold are at historic highs (inflated in part by Grasberg's own supply shock + speculation). The trailing P/E is distorted (earnings depressed by Grasberg, not by commodity weakness).
• At disciplined mid-cycle (copper ~$4.50, not spot $6) normalized attributable income yields a value well below the price — the apparent 'cheap' disappears.

This is the archetypal case of 'watch out: it may not be cheap, only appear so' (§9). The Grasberg incident is a genuine motivated-seller (a non-recurring event, with fatalities, that depressed GAAP and guidance) — but simultaneously the commodity is at its peak. Buying here is a bet that copper stays at all-time highs. The method's discipline (mid-cycle copper × a multiple within range, not the peak × a high multiple = compounded optimism, the XOM rule) says the price already discounts the supercycle. The Grasberg discount is real, but more than offset by copper's peak price.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -26%/year (-78% total): the margin of safety protects the downside. The bull (-5%/year, -24% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Copper reverting to its average. A global recession, normalization of Grasberg's supply shock, or the end of the speculative rally would push copper to ~$3.50-4.00; with high operating leverage, results and the stock would fall.
• Cycle-peak price. The entire thesis at market price rests on copper — and gold, at a historic peak of $5,405/oz in January 2026 — staying at peaks: it is downside asymmetry, not margin of safety.
• Grasberg delay. The 10-K anticipates the staged restart of Grasberg Block Cave for 2Q-2026 without fixing a return-to-full-capacity date, and recognizes that remediation and restart «may not proceed as planned»; a new incident or delay (seismic zone, complex geotechnics, chute bottleneck) hits volume directly.
• Resource nationalism in Indonesia. The IUPK/MOU failing to materialize, or policy changes in Peru or Chile (permits, taxes), would degrade asset value.
• Input costs, tariff, and regulatory investigation. Energy cost inflation compresses cash costs, the US tariff on refined copper cathode — upside optionality — may not materialize, and the company cooperates with a pending SEC and DOJ investigation into PT-FI smelter disclosures in Indonesia, with no accounting provision or known outcome to date.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 11% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 3% at a PEG of 12.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 11% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 12% vs our 3%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -28%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, intangibles, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 12% growth, far above our 3% — heroic assumptions.