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On December 9 Freeport McMoRan Copper & Gold (FCX) announced that it would pay a special dividend of $1 a share on December 30 (to shareholders of record on December 20). In addition the company announced a 2 for 1 stock split effective on February 1, 2011. This all comes on top of a vote by the board of directors in October to increase the company’s annual dividend to $2 a share from the current $1.20. (The new dividend will be paid to shareholders on February 1. To take account of the 2/1 split, the quarterly payment will be 25 cents a share.)

Certainly Freeport McMoRan has the cash to spread around.  Copper is trading near a record high and prices look to go higher in 2011 as supply struggles to keep up with demand. Copper has traded at about $4.00 a pound recently and Freeport estimates that its cash costs to produce copper will come out at 87 cents a pound in 2010. Operating cash flows were $2.9 billion in the first half of 2010, up from $900 million in the first half of 2009. Wall Street estimates operating cash flow for 2011 at $13.80 a share in 2011 or about $6.5 billion.

But think about what Freeport McMoRan is saying about years beyond 2011 by distributing all this extra cash–$471 million from the special dividend and another $376 million from the October dividend increase—rather than sinking it all into acquiring other copper companies or finding and then developing new assets.

Freeport certainly knows that everybody in the copper industry is sinking billions into new mines that will take ten years to come on line. No threat to copper prices from that for a while.

And that a lot of new mines where development started in 2002 or later should start producing copper in 2012 or so.

It’s by no means certain that, given declining ore grades in the world’s copper mines and increasing demand from developing economies such as China, this new production will be enough to produce one of those supply gluts that periodically devastates the global mining industry.

But it looks like Freeport McMoRan has decided not to go whole hog on spending to develop new capacity. The company in its third quarter conference call projected capital expenditures at a relatively modest $1.6 billion for 2010 and $2.3 billion in 2011. That contrasts with recent announcements of huge increase in capital spending by mining competitors such as Rio Tinto (RIO). Rio Tinto recently forecast a jump in capital expenditures to $11 billion in 2011 from $4 billion in 2010.

Of course Freeport McMoRan can afford to go slow since, due to its production profile, it will be able to add about 500 million pounds to copper production in 2011 and 2012 through relatively low cost pit expansions, mine restarts, and mine upgrades. (The company sells roughly 4 billion pounds of copper a year.)

In a December 9 post I said it was hard to find a bargain among copper mining stocks now. And I certainly wouldn’t say that Freeport McMoRan is a bargain trading near its 52-week high. But given the company’s production profile over the next two years and its very conservative approach to capital spending, I think the stock is a very low risk way to buy into a copper boom that should run well into 2011.

I was going to give the shares a few days to see if the possibility that China will raise interest rates to fight rising inflation might give me an entry around the November lows of $97 or so. But on recent news that Beijing has decided to raise its inflation target in 2011 to 4% from the 3% target of 2010, I think that’s unlikely.

I’m adding these shares to Jubak’s Picks with a pre-split target price of $140 a share ($70 a share after the 2-1 split) by September 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Freeport McMoRan Copper & Gold as of the end of the September quarter. For a full list of the stocks in the fund as of the end of the most recent quarter see the fund’s portfolio at