Freeport Surges as $1 Billion Stock Sale Seen as Necessary Evil

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Normally a plan to dump $1 billion in new stock on the market would send investors packing. Not for Freeport-McMoRan Inc., whose shares rose the most in six years.

The world’s biggest publicly traded copper producer surged 11 percent in New York, the most since March 2009 and the best performance among major mining companies, after it filed the offering prospectus.

While new shares will dilute value for existing holders, the money raised could help Freeport lower debt amid slumping prices of everything from copper to oil. Investors are seeing it as a better option than selling more assets or taking its oil business public, according to Daniel Rohr, an analyst for Morningstar Inc.

“Market expectations for oil prices just a few years down the road are pretty ugly, and in that environment you don’t want to be a seller,” Rohr said by telephone from Chicago.

A broad commodities rebound Monday also bolstered Freeport shares. The Bloomberg Commodity Index that tracks 22 raw materials posted the biggest intraday gain since February on Monday amid increased Chinese crude-oil imports, supply disruptions at copper mines and worsening conditions for corn.

The Phoenix-based miner that bet big on the energy market two years ago entered into a share distribution agreement with a unit of JPMorgan Chase & Co. and may offer common stock, it said in a statement Monday.

Freeport is responding to a 19 percent slump in copper prices in the past three months, the biggest meltdown since November of 2008 as Chinese demand slows and the U.S. dollar strengthens. The company announced energy spending cutbacks last week as part of a sweeping operational review.

Debt Danger

The share sale will allow Freeport to reduce net debt that stands at $20.4 billion, or about four times estimated earnings before interest, taxes, depreciation and amortization, according to Jefferies LLC analysts led by Christopher LaFemina.

“In this lower commodity price environment it becomes more dangerous to have a lot of debt,” LaFemina said by telephone. “It becomes important to focus on repairing the balance sheet.”

The stock had lost more than 50 percent in the past three months, the worst performance in the Bloomberg World Mining Index. Freeport bonds due 2024 rose 7 cents to 83 cents on the dollar after a sell-off sent yields to a high of 7.7 percent on July 27 from 4.9 percent at the beginning of the year.

While Monday’s statement didn’t say when the shares would be sold, Jefferies analysts said they expect it to happen soon.

Freeport is also looking at bringing in partners to help shoulder spending burdens and said it will announce results of its operational review this quarter.

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