According to Roger Conrad and Yiannis Mostrous, "Resource stocks are by nature volatile. The important thing is we're still very much in a long-term bull market. And when the market mood does shift, today's pain will convert very quickly to massive gain."

In Vital Resource Investor they explain, "There is ongoing consolidation in this sector and the recent setback in stock prices make deals more attractive for acquirers." Here, they look at Companhia Vale do Rio Doce (NYSE: RIO), a play on consolidation in the iron ore industry.

"And when the market mood does shift, today's pain will convert very quickly to massive gain. The long-term underpinnings for vital resources are strong as ever: Soaring demand from the world's emerging growth engines, a growing scarcity of easily accessed supplies, rising development costs, resurgent resource nationalism and ongoing sector consolidation.

"It's this last trend that's captured our attention lately. Importantly, when it comes to developing vital resources profitably, size is essential. This year has already witnessed two mega-deals: Freeport Copper & Gold (NYSE: FCX) has bought Phelps Dodge and Rio Tinto (NYSE: RTP) purchased Alcan.

"And we're certain to see many more announced in coming months. The recent dance between BHP Billiton (NYSE: BHP) and its giant rival suggest the need to get bigger is greater than ever. Even if it doesn't succeed, the proposed merger is already increasing rivals' urge to merge.

Continue reading Companhia Vale do Rio Doce (RIO): Strong play on iron ore

Companhia Vale do Rio Doce (RIO): Strong play on iron ore originally appeared on BloggingStocks on Thu, 06 Dec 2007 16:10:00 EST. Please see our terms for use of feeds.

Even if copper prices were to move much lower, Freeport-McMoRan Copper & Gold (NYSE:FCX) still "appears cheap" according to Richard Moroney.

In fact, he includes the stock on his Focus Buy List, which represents the strongest buy rating issued by his newsletter, Dow Theory Forecast.

The company has completed its $25.9 billion acquisition of Phelps Dodge and the advisor feels the move made operational sense, noting it's provided Freeport with a geographically diverse asset base while also lessening its dependence on a potentially volatile political situation in Indonesia, which is the site of its huge Grasberg mine.

He explains, "The combined company should have sufficient resources to fund capital expansion while also paying off debt. To fund the acquisition, Freeport is issuing $16 billion in bonds, at least $1 billion in preferred stock convertible to common shares, and at least $2.1 billion in common shares."

Meanwhile, he observes, among the five Wall Street analysts that have adjusted for the merger, the average per-share profit estimate is $8.11 for 2007 and $8.52 for 2008.

He does caution that earnings are tied to metals prices. In fact, he says, "By one estimation, a change of $0.10 per pound in copper prices would spark a rise or fall of $0.75 in per-share earnings."

Nevertheless, while rising copper prices have supported the stock in recent trading, he concludes, "Freeport appears cheap even based on consensus expectations of much lower copper prices."

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free website, TheStockAdvisors.com.

Focus on Freeport originally appeared on BloggingStocks on Fri, 23 Mar 2007 10:25:00 EST. Please see our terms for use of feeds.

On 14 March 2007, Phelps Dodge Corporation (NYSE:PD) was acquired by Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) to form the world's largest copper mining company. The purchase price was $26 billion. Now that is a whole lot of pennies. $6 billion of the purchase price stems from bonds issued by FCX. Phelps Dodge shareholders will receive $88 in cash for each share of PD common stock, plus 0.67 of a share of FCX's common stock for each share of PD common stock. PD shareholders will pocket a total of $18 billion in cash. This works out to $125.53 per share of PD common stock. Shares of PD closed at $127.93 on 15 March 2007, up $2.22 per share. For its part, FCX shareholders authorized an increase in the number of shares of FCX common stock available from 423.6 million to 700 million.

Phelps Dodge has been on a tear lately reporting 4Q 2006 record net income of $1,324.3 million, or $6.50 per share for the quarter. Compare that figure to 4Q 2005 net income of $121.3 million, or 60 cents per share. 4Q 2006 price of copper per pound averaged $3.19 on the New York Commodity Exchange, compared to $2.02 for 4Q 2005.

Total 2006 net income exceeded $3 billion, bouyed in part by strong prices for copper and molybdenum, as well as by new mining operations at the Cerro Verde mine in Peru, the Safford mine in Arizone, and the Tenke Fungurume in the Democratic Republic of the Congo.

Phelps Dodge acquired for $26 billion originally appeared on BloggingStocks on Fri, 16 Mar 2007 14:42:00 EST. Please see our terms for use of feeds.

Freeport McMoRan readies for Phelps Dodge vote originally appeared on BloggingStocks on Tue, 13 Mar 2007 12:39:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY:

• Genesis Microchip Inc (NASDAQ: GNSS) was downgraded to Sell from Hold at Roth Capital, citing the loss of significant market share, and to Market Weight from Overweight at Thomas Weisel following the company's disappointing earnings report.

• Columbia Sportswear Co (NASDAQ: COLM) was downgraded to Sell from Hold at Matrix USA based on valuation.

• Calyon downgraded Gentex Corp (NASDAQ: GNTX) to Sell from Neutral.

• Following the company's fourth-quarter report, Buckingham downgraded International Flavors & Fragrances Inc (NYSE: IFF) to Neutral from Accumulate.

• Bank of America downgraded Clear Channel Communications Inc (NYSE: CCU) to Neutral from Outperform with a $37 target, as shares are pricing a best-case scenario of a deal and sees downside risk if the deal falls apart.

• Following fourth-quarter results and reduced guidance, Friedman Billings downgraded shares of Phelps Dodge Corp (NYSE: PD) to Market Perform from Outperform with a $125 target.

Analyst downgrades 1-30-07: Columbia Sportswear was left out in the cold originally appeared on BloggingStocks on Tue, 30 Jan 2007 10:40:00 EST. Please see our terms for use of feeds.

Freeport & Phelps Dodge: Deal Or No Deal? originally appeared on BloggingStocks on Mon, 11 Dec 2006 15:35:00 EST. Please see our terms for use of feeds.

A month ago, Freeport-McMoRan (NYSE:FCX) agreed to buyout Phelps Dodge (NYSE:PD) for $25.9 billion. The deal would result in the world's largest publicly trader copper producer.

However, a mega hedge fund, SAC Capital, is not happy with the deal and is doing something about it. Today we learn that the fund has bought about 5.1% of Phelps Dodge.

Because of this large purchase, SAC had to file a disclosure document with the SEC (known as a 13D). In it, the fund gives reasons for the purchase:

The Reporting Persons believe that the terms of the proposed FCX transaction would not provide full and fair value to the Issuer's shareholders and would deprive them of their ability to maximize the return on their investment. The Reporting Persons believe that the proposed FCX transaction offers few, if any, synergies to the combined operation, and would use the Issuer's balance sheet to fund the purchase in what is essentially a public recapitalization that would create disproportionate value for FCX shareholders at the expense of the Issuer's shareholders. In addition, the Reporting Persons believe there is unrecognized long term value that the Issuer's shareholders would forego if they sold their shares at FCX's proposed terms. Accordingly, the Reporting Persons currently intend to vote against the proposed FCX transaction.

SAC has a great track record, and no doubt sees Phelps Dodge as undervalued. With some pressure, Freeport-McMoRan may boost the price tag. Or another bidder may come to the table.

This perhaps points to a new trend: hedge funds may start using more activist approaches with their investments. With the surge in M&A activity, there is a lot of opportunity for this.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.

Hedge fund moves in on the Phelps Dodge buyout originally appeared on BloggingStocks on Mon, 11 Dec 2006 10:49:00 EST. Please see our terms for use of feeds.

This week Barron's has a piece with an enticing title: " A Buyout Boom Lifts Selected Shares."

Well, the article takes an indepth look at Freeport-McMoRan's $26 billion buyout bid for Phelps Dodge (I wrote about this deal in a recent piece for BloggingStocks.com).

So, might there be a bidding war for Phelps? True, there are synergies with Freeport; however, there are likely better suitors. Some of the possibilities include: BHP Billiton, Anglo-American, and Norilsk Nickel. In fact, there may even be interest from mega private equity firms (which seem to have no limits)

A big concern, though, is the nature of the copper market. With problems in the US real estate, might there be trouble?

Maybe. But, there is still much growth potential from China and India.

Besides, Phelps still looks cheap (despite all the buyout action). Based on its enterprise value, the company is selling at about 6X earnings.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

Barron's: More bids for Phelps Dodge? originally appeared on BloggingStocks on Sun, 26 Nov 2006 18:38:00 EST. Please see our terms for use of feeds.

All that glitters is gold (and copper): Freeport agrees to buy Phelps Dodge for $25.9 billion originally appeared on BloggingStocks on Mon, 20 Nov 2006 17:20:00 EST. Please see our terms for use of feeds.

Daily options report: Nabors spikes, Intuitive Surgical up originally appeared on BloggingStocks on Mon, 20 Nov 2006 16:36:00 EST. Please see our terms for use of feeds.

Even though it's a smaller company, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has made a $25.9 billion bid for Phelps Dodge Corp. (NYSE:PD). If the deal closes, the new entity will be the largest publicly-traded copper company worldwide.

It's certainly a nice deal for shareholders of Phelps Dodge. The offer is for about $126 per share -- a nice premium to Friday's close of $95.02.

Interestingly enough, it appears this was a fairly quick deal (about a couple weeks). Then again, for companies of this size, it is not easy to keep things confidential.

The deal means Freeport-McMoRan would be taking on a lot of debt. Then again, the debt markets are quite frothy right now. Besides, Freeport-McMoRan knows how to generate strong cash flows, which will help to pay-down the debt load.

Besides being accretive on the short-run, the long-term prospects of this deal look good as well. After all, China and India are undergoing major growth, which should mean a big need for copper. To fulfill this growing need for copper, Freeport-McMoRan needs a highly scalable global platform. And Phelps Dodge is certainly a great fit.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

Phelps Dodge hits a $25.9 billion mother lode originally appeared on BloggingStocks on Mon, 20 Nov 2006 10:21:00 EST. Please see our terms for use of feeds.

MOST NOTEWORTHY: Phelps Dodge (PD) and MGM Mirage (MGM) top today's small list of initiations.

• Phelps Dodge Corporation (NYSE:PD) was initiated with a Sector Outperformer at CIBC and a $125 target. CIBC believes the company will continue and possibly expand their $2B shareholder capital return program.
• FTN Midwest initiated MGM Mirage (NYSE:MGM) with a Buy and $57 target. They are positive on MGM's best in class assets.

OTHER INITIATIONS:

• First Albany initiated Joseph A. Banks (NASDAQ:JOSB) with a Neutral, citing the lack of near-term catalysts for its rating.
• UBS initiated Allied Waste Industries, Inc. (NYSE:AW) with a Buy and $15 target.
• Credit Suisse reinstated KLA-Tencor Corp. (NASDAQ:KLAC) with a Neutral.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Analyst initiations 10-24-06: Phelps Dodge and MGM Mirage originally appeared on BloggingStocks on Tue, 24 Oct 2006 11:21:00 EST. Please see our terms for use of feeds.

Evidently, Jim Cramer can opine on worldwide politics, not just money! Tonight on MAD MONEY he went far afield from his usual fare and pointed to the New York Times World Briefing about how the leader of the Shining Path in Peru will spend the rest of his life in prison.

Cramer, the sort to see an investment decision in any news, said this is actually good for Peru. But what's the pick? He likes Southern Copper Corporation (NYSE:PCU) the best, formerly Southern Peru Copper. He thinks Peru is a good Latin country that is still pro-capitalism. He thinks it is a real democracy, but the real reason to buy is the yield. It yields 8% from its dividend. It is also #4 on Fortune's 100 Fastest-Growing Companies. He said it has larger reserves than Phelps Dodge Corporation (NYSE:PD) and he said the company can smelter copper cheaper than others. He also said a strike resolution was favorable to the company. Cramer also said that the new non-hedging policy on copper prices will create an earnings explosion.

Cramer has been positive on Southern Copper before. Its shares closed down 0.7% at $50.65 in regular trading, but it traded up to $51.50 after Cramer touted the stock. Its 52-week trading range is $24.79 to $54.97.

Cramer goes South -- way South, to Southern Copper originally appeared on BloggingStocks on Wed, 18 Oct 2006 18:22:00 EST. Please see our terms for use of feeds.

Cramer is hungry: YUM, McDonald's, Darden good, Phelps Dodge to $100 originally appeared on BloggingStocks on Thu, 12 Oct 2006 15:12:00 EST. Please see our terms for use of feeds.

Investing in mining stocks is not for the weak of stomach even under the best of circumstances. The complicated threeway deal involving Phelps Dodge (copper), Inco Ltd. (nickel) and Falconbridge Ltd. (nickel) fell through because there were simply too many best guess scenarios touted by senior management to allow shareholders to feel comfortable voting to increase debt levels in the combined company to almost $20 billion. Phelps Dodge mines primarily for copper, which is enjoying an upswing in price worldwide due to rising demand from China. Inco Ltd. and Falconbridge Ltd., both Canadian-based and both nickel mining companies, proposed a merger with Phelps Dodge to stave off hostile bids. Canadian-based Tech Cominco Ltd. was after Inco Ltd. Swiss-based Xstrata PLC gained control of Falconbridge Ltd. in August, thus squashing that portion of the deal.

Now both Inco Ltd. and Phelps Dodge are acquisition targets. Companhia Valo de Rio Dolce SA of Brazil has offered $17 billion cash for Inco Ltd. Phelps Dodge had originally offerd $17.4 billion in cash and stock for both Inco Ltd. and Falconbridge Ltd. Tech Cominco Ltd. is still in the bidding for Inco Ltd. Phelps Dodge senior management is now talking about a possible merger of Phelps Dodge and Inco Ltd. though that is the unlikeliest scenario given the no votes from Inco Ltd. shareholders already this spring. The only folks in favor of this threeway were senior management at the companies. Most analysts thought the threeway was a stinker from the get-go, including Mark Sirower of Pricewaterhouse Cooper. He called the deal "an invention of investment bankers" with little understanding of the economics of the industry.

Phelps Dodge threeway breaks up originally appeared on BloggingStocks on Thu, 14 Sep 2006 14:47:00 EST. Please see our terms for use of feeds.

A billion here, a billion there - yes, pretty soon, it adds up to a lot of money. That's the case with today. Wall Street was able to strike up $90 billion in merger & acquisition (M&A) deals.

Even during the boom times of the 1980s and 1990s, this would be a blockbuster day. 

Here's a look at the key deals:

First, Phelps Dodge crafted a $40 billion deal to buy two companies in the nickel mining business, Inco Ltd. and Falconbridge Ltd. With the transaction, Phelps Doge will have 40,000 employees. The company's name also changes to Phelps Dodge Inco (kind of like a law firm, huh?) The massive entity will be the #2 worldwide in copper and molybdenum, as well as #1 for nickel.

Continue reading Do I hear $100 billion?

Do I hear $100 billion? originally appeared on BloggingStocks on Mon, 26 Jun 2006 14:08:00 EST. Please see our terms for use of feeds.