Freeport-McMoRan - paying the price When you slap two risks together, is the total risk the sum of the two (addition, for those who slept in class) or the product (multiplication)? Freeport-McMoRan Copper and Gold is about to find out. The miner is pairing the risks of diversifying into a new industry - oil and gas - with those inherent in paying big premiums for acquisitions. The US copper and gold miner said on Wednesday it would spend $20bn on two oil exploration and production companies with operations in the US and the Gulf of Mexico: $16bn in cash, stock and assumed debt for Plains Exploration & Production, and $4bn in cash and stock for McMoRan Exploration (where Freeport chairman James "Jim Bob" Moffett is chief executive). The premiums are 39 per cent and 74 per cent, respectively. No wonder Freeport's shares crashed 15 per cent. Why would it pay above the odds to diversify away from a business in which it has done well? Freeport's shares have returned nearly 600 per cent in the decade before the deal was announced. The world's second biggest copper producer by output may simply be bearish on copper prices, which have risen 380 per cent over that same decade. The supply-demand picture is firm now, with copper inventories hitting lows in the third quarter. But a soft Chinese economy, and miners" readiness to go ahead with new projects, makes the long-term outlook drearier. The deal's other appeal is the low political risk profile of US assets, which may let executives and investors sleep soundly at night in ways that Indonesian, African and South American mines do not. But the biggest danger to Freeport's new venture is American too: the impact of newly accessible US shale oil on global prices. That will depend on how voters and regulators treat hydraulic fracturing, the technology that frees shale oil. Political risk comes in many flavours.