UPDATE: Jefferies Resumes Freeport-McMoRan Copper & Gold with Buy Following Disappointing Transaction

In a report published Thursday, Jefferies analyst Peter Ward resumed coverage on

with a Buy rating and $40.00 price target. In the report, Jefferies noted, “From FCX shareholders' perspective, we believe the disappointment with this transaction is entirely justified. We have studied the arguments in favor of this transaction for months; we find none of them persuasive. In covering the mining industry for two decades, we have found there are two possible but rare justifications for acquisitions. First, acquisitions can be justified when there are legitimate operational synergies. An example of this would be Arch Coal's acquisition of the Jacob's Ranch mine, which is adjacent to Arch's Black Thunder mine in the PRB. Second, acquisitions can make sense when there is a multiple arbitrage opportunity. On our estimates, in 2006, FCX traded at a substantial valuation premium to Phelps Dodge. To us, it made perfect sense for FCX to acquire Phelps Dodge. This latest merger offers no operational synergies. And, it is difficult for us to contemplate a scenario where FCX shares would be materially more expensive than that of the two targets to justify paying a premium to the market.” Freeport-McMoRan Copper & Gold closed on Wednesday at $30.32.