Freeport upgraded, Antofagasta cut at Bernstein after Grasberg hit

Bernstein upgraded Freeport-McMoRan (FCX) to Outperform, citing an overreaction to the Grasberg mine mud flow which, despite an anticipated 35% reduction in 2026 copper output and $1.5 billion in recovery costs, still presents an attractive upside given its critical role in FCX's earnings and global copper supply. Concurrently, Antofagasta (ANTO) was downgraded to Market Perform, as its stock has rallied beyond target prices driven by the broader copper market, with a key risk being further copper price acceleration rewarding ANTO over FCX.

Analysis

Bernstein has issued a significant rating change in the copper sector, upgrading Freeport-McMoRan (FCX) to Outperform while downgrading Antofagasta (ANTO) to Market Perform. The thesis for the FCX upgrade is centered on the belief that the market has over-penalized the stock following a mud flow that halted operations at its critical Grasberg mine. Despite new guidance pointing to a 35% reduction in expected 2026 copper output and an estimated $1.5 billion in recovery costs, Bernstein's analysis indicates the shares now appear attractive relative to peers. The Grasberg mine's strategic importance is underscored by its contribution of 45% of FCX's total revenue and 77% of its earnings in 2Q25, and its role in supplying approximately 3% of global copper. Conversely, Antofagasta's downgrade is a valuation call; while acknowledged as a strong operator, its stock has been driven beyond target prices by the broader copper rally, partly fueled by the Grasberg outage. Key risks to the outlook for FCX include a slower-than-expected operational recovery, potential delays in extending its Grasberg mining license, and costs associated with other expansion projects.

Key Decisions for Investors

• Investors could view Freeport-McMoRan's current valuation as a compelling entry point, as the market may have excessively discounted the stock following the Grasberg incident, creating potential upside even with revised production forecasts and recovery costs.
• For Antofagasta, the downgrade suggests that its recent price appreciation has stretched its valuation, prompting consideration for profit-taking or reducing exposure as it is now trading beyond the analyst's target price.
• A potential relative value strategy could involve a long position in FCX against a short position in ANTO, to capitalize on the expected valuation convergence outlined in the analyst ratings change.
• Closely monitor the Grasberg recovery timeline, any news regarding Freeport's Indonesian mining license extension, and copper price movements, as these are the primary variables that will dictate the success of this investment thesis.