Commodity prices are now in a freefall. The bearish downtrend will leave few survivors, especially companies heavily indebted from excessive acquisitions from the past. The mechanics around financial strain for firms like Breitburn Energy (NASDAQ:BBEP) and Cliffs Natural Resources (NYSE:CLF) are easy to grasp for investors. Revenue is falling and is companies cannot manage their debt levels. Freeport-McMoRan (NYSE:FCX), which acquired oil and gas exploration before energy prices fell, is in a dangerous situation. In the copper market, Goldman Sachs thinks copper prices will not rise above marginal costs until 2020. As the stock approaches lows not seen since 2008, is there any compelling reason for investors speculate on a rebound?

Unsurprisingly, Freeport-McMoRan reported terrible Q2 results. The company lost $1.85 billion, or $1.78 per share. The company was profitable after considering the $2 billion write-down. Derivative contracts for crude oil helped boost operating cash flow, but still below capital expenditure levels in the quarter.

BBEP data by YCharts

Freeport-McMoRan's debt is $20.9 billion. For now, liquidity should not concern investors, since there is still $3 billion available from the credit revolver. The only positive developments for the company are the improving operational efficiencies and progress of the project developments. This includes the Grasberg, Morenci, and Lucius projects.

Macroeconomic headwinds

In addition to lower PMI numbers, News that China is failing to prop up its stock market (the Shanghai index fell again by 8.5 percent) suggests copper prices will not recover soon. Since Freeport-McMoRan committed over $4 billion for its capital budget for copper production, investors should expect weaker profitability in the months ahead.

The company did not alter its demand outlook for copper. It still expects China's need for the metal will grow, through 2024:

Source: Freeport-McMoRan

Production costs are already low, but Freeport-McMoRan has the flexibility in lowering costs further, should prices weaken:

Freeport-McMoRan has a few options available if prices for molybdenum and copper fall: close or curtail production from higher cost mines, sell assets, and issue debt or shares. The company is already issuing an IPO for its oil and gas. It will then use the proceeds from the sale for capital expenditures. The higher oil production afterwards would lessen the drop in free cash flow.

Risks

Freeport-McMoRan is clearly a risky investment. The upside depends on metal and energy prices stabilizing, but if Goldman's forecast is right, this company's stock may re-test 2008 lows. Beyond relying on that forecast, investors losing money in this holding will need to wait for a rebound in commodities.

In the meantime, Freeport may suspend its small dividend, saving a symbolic $210 million. The company may sell asset at fire sale prices if the commodities market remains weak. Despite the eventual write-downs, the company will survive. Prior to closing at $12.00 on November 1, 2008, the stock was at $58.60. In the near term, the stock will price in the weakness in China further. This will mean its shares will test support at the 2008 lows.