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Freeport to Sell 13% Stake in Morenci Mine for $1 Billion

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FreeportFCX has agreed to divest its 13% ownership interest in its Morenci unincorporated joint venture to its Japan-based partner, Sumitomo Metal Mining Co., Ltd. ("SMM") for $1 billion in cash. The move is part of the mining giant's efforts to pare debt amid a challenging operating environment.

Freeport currently holds a 85% stake in the Morenci joint venture with Sumitomo Metal Mining Arizona Inc. (SMMAz) owning the remaining 15%. SMMAz is owned 80% by SMM with Sumitomo Corporation holding the remaining stake. Following the deal closure, Freeport will own 72% of the joint venture.

At the end of 2015, Freeport's 85% share of consolidated recoverable reserves was 12 billion pounds of copper and its share of 2015 production was around 900 million pounds of copper. The company's 85% share of revenues from the Arizona-based Morenci mine was $2.2 billion and production and delivery costs was $1.5 billion in 2015.

The transaction, which is subject to regulatory approvals and customary closing conditions, is expected to consummate in mid-2016. Freeport expects to use the proceeds from the transaction to repay borrowings under its bank term loan and revolving credit facility. The company expects to record around $550 million gain on the transaction.

Freeport's shares jumped around 15.2% to close at $6.37 yesterday.

Freeport posted a loss in the fourth quarter of 2015, hurt by hefty charges mostly related to its oil and gas properties. Adjusted loss was narrower than the Zacks Consensus Estimate. Revenues fell by double-digits on lower copper and gold pricing, and missed expectations.

Freeport, like other miners, is reeling under the effects of broad-based weakness in commodities. The depressed oil and copper pricing environment remains a major headwind for the company.

Sluggishness in China (a major market for copper) is affecting markets, thereby hurting Freeport's core copper mining business. China, which solely accounts for around 45% of global copper consumption, saw a steady decline in copper imports in 2015 in the wake of the economic downturn.

Weak demand in China is weighing on copper prices . Copper prices plummeted to their lowest level in seven years last month on concerns over the Chinese economy and oversupply. In 2015, copper lost 25% of its value amid concerns about China's economic health.

Moreover, the oil price rout has dealt a massive blow to Freeport, hurting its oil and gas business. The persistent global supply glut coupled with growing concerns over a slowdown in the Chinese economy and a stronger dollar are hurting oil prices .

Nevertheless, Freeport is taking aggressive actions, including asset sales and deferral of capital spending in an effort to cope with the weak commodity pricing environment. The company is undertaking measures to manage costs and capital expenditures in a bid to strengthen its balance sheet. It is also taking actions to cut debt and enhance shareholder value through asset sales and joint venture transactions.

Freeport is a Zacks Rank #3 (Hold)

Better-ranked mining companies include AngloGold Ashanti Ltd. AU , Golden Star Resources, Ltd. GSS and Harmony Gold Mining Company Limited HMY , with all carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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