Desjardins Sees Significant Upside for Freeport-McMoRan Following Phelps-Dodge Merger

Shareholders from both Phelps Dodge Corp. (PD) and Freeport-McMoRan Copper & Gold Inc. (FCX) will vote on a proposed merger at a special meeting on Wednesday, March 14, 2007.

The tie-up, which was first announced in November 2006, will see FCX pay roughly US$26-billion in cash and stock to Phelps shareholders. It will also create the world’s largest publicly traded copper company.

Analysts at Desjardins Securities recommend that shareholders of both companies approve the deal.

There is significant upside for shares in the ‘new’ Freeport, which should trade at US$68.40 per share within 12 months, the firm said in a note to clients.

This price represents upside of roughly 18% from where Freeport’s shares currently trade.

Desjardins says an attractive valuation, strong corporate strategy and a positive outlook for the company’s major metals are reasons why investors should buy new Freeport shares.

In 2006, 78% of Freeport’s revenue came from copper, 12% from molybdenum and 10% from gold.

“We expect New Freeport to grow low-cost, profitable production both from existing operations and new mine projects,” the firm said, adding that it thinks the shares are undervalued on earning basis when compared to Freeport’s base metal peers.

Click here for an FCX presentation at Morgan Stanley's Basic Materials conference on Feb. 22, 2007 (pdf file)