Dadang Tri/Bloomberg

Has Freeport Fired the Starting Gun on Mining Share Sales?

The debt-laden mining industry may be on the cusp of a wave of new share sales.

Freeport-McMoran Inc. shares surged the most since 2009 on Monday after the company decided to sell $1 billion in new stock in a surprise move.

The extra cash could help Freeport reduce debt, and in an industry struggling with lower prices for everything from gold to copper to coal, other companies may look to follow suit.

"We wonder if this is the first of the sizable equity financings to be undertaken by the larger miners to help fix balance sheet pressures," Investec Plc analysts wrote in a note Tuesday. 

Freeport, the largest publicly traded copper producer, jumped 11 percent in New York trading on Monday, the best performance among the major mining companies . A day later it slumped 13 percent as China's decision to devalue the yuan further eroded confidence in commodities demand.

The 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 this year, according to Jefferies LLC analysts led by Christopher LaFemina.

As metal prices continues to slide - copper and aluminum hit a six-year low on Tuesday - producers may rethink their existing approach to debt reduction, which has mainly been to sell assets.

Gold and coal producers are under the most pressure. U.S. coal producers Alpha Natural Resources Inc. and Walter Energy Inc. filed for bankruptcy protection this year as overcapacity, a slowing Chinese economy and cheaper natural gas prices eroded market share.

Gold's decline to a five-year low stretched balance sheets in an industry where the biggest producers are weighed down by record debt of $31.5 billion. Producers including Barrick Gold Corp. and AngloGold Ashanti Ltd. have sold assets to pare debt.

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