Freeport-McMoRan Inc., the copper miner that bet big on the energy market two years ago, fell the most in six months after it failed to offer investors a plan to withstand plunging prices for almost everything it produces.
As copper fell to a six-week low and oil relapsed into a bear market in New York, Chief Executive Officer Richard Adkerson told investors that “all options are on the table,” without providing specific plans. Possibilities include asset sales and curtailing operations, he said.
Adkerson’s comments came in a conference call after the company reported a second-quarter net loss of $1.85 billion, compared with income of $482 million a year earlier. Freeport is trying to cut debt that jumped sixfold in 2013 after it bought two energy companies. Last month, Freeport said it would sell shares in its energy unit to finance expansion elsewhere.
“In a time of falling commodity prices, investors generally don’t like uncertainty,” said Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities. He said it remained unclear how much the initial public offering would allow Freeport to ramp up oil and gas production.
Freeport dropped 9.4 percent to $13.64 at the close in New York, the biggest one-day plunge since Jan. 14. The shares have declined 42 percent this year.
From the beginning, some investors were skeptical the near-simultaneous acquisitions of McMoRan Exploration Co. and Plains Exploration & Production Co. would provide the hedge against copper and gold downturns that Freeport promised. In January, the company agreed to settle shareholder lawsuits claiming it overpaid.
Nothing in Freeport’s earnings report negates the fact that its fate is tied to three commodities that are selling off -- and the stock is being punished as a result, said Ivan Feinseth, an analyst and chief investment officer with Tigress Financial Partners in New York.
“Our firm belief is that oil, gas and copper are even going lower,” Feinseth said Thursday by phone. “That means their fortunes are not going up, they’re going to go down,” he said referring to Freeport.
In New York, copper dropped for the fifth consecutive session. Futures for September delivery declined 1.8 percent to close at $2.3855 a pound at 1:29 p.m. on the Comex in New York. After the settlement, prices extended their slide to $2.3575, the lowest since July 2009. Meanwhile, oil futures in New York fell and gold clung on to its first advance in 11 sessions in New York.
Feinseth said it will be “almost impossible” for commodity-based companies to do well given current markets. Freeport’s decision to purchase two energy assets in 2013 makes him doubt the company’s ability to form a strong plan to cope with falling commodities, he said.
“They haven’t been proactive, they’ve been reactionary,” Feinseth said. “They got into oil at the top.”
Freeport is still hopeful the IPO will take place this year, Jim Flores, the company’s co-vice chairman, said on the conference call. Still, he said, the amount sold will be affected by market conditions.
“When it comes to size, we can sell 19.9 percent of the business and still achieve our objectives,” Flores said.
Not all the news was negative for Freeport on Thursday. Excluding one-time items, the company posted second-quarter earnings of 14 cents a share, topping the 8-cent average of 13 estimates compiled by Bloomberg. Sales dropped 23 percent to $4.25 billion, beating the $4.16 billion average estimate.
The company’s average cost to produce copper dropped 13 percent to $1.50 and it produced more of the commodity.