Freeport (NYSE:FCX) has wrapped up the sale of a 13% interest in its Morenci unincorporated joint venture to its Japan-based partner, Sumitomo Metal Mining Co., Ltd. (“SMM”) for $1 billion in cash. The deal was announced in Feb 2016.
The move is part of the mining giant’s efforts to pare debt amid a challenging operating environment. With the completion of the transaction, Freeport now holds a 72% stake in the Morenci joint venture with Sumitomo Metal Mining Arizona Inc. (SMMAz) and SMM owning 15% and 13%, respectively. SMMAz is owned 80% by SMM with Sumitomo Corporation holding the remaining stake.
Freeport plans 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 $600 million gain (post-tax) on the transaction in second-quarter 2016.
Freeport posted a loss in the first quarter of 2016, 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 year over year 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 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.
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 divestitures and joint venture transactions.
Freeport is a Zacks Rank #3 (Hold)
Some better-ranked companies in the mining space include Pretium Resources Inc. (TO:PVG) , Harmony Gold Mining Company Limited (NYSE:HMY) and Ciner Resources LP (NYSE:CINR) . While Pretium Resources sports a Zacks Rank #1 (Strong Buy), both Harmony Gold and Ciner Resources carry a Zacks Rank #2 (Buy).
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