- Measures include the suspension of its common stock dividend
- The company plans to shutter its Sierrita mine in Arizona
Freeport-McMoRan Inc. extended spending and production cutbacks as the biggest publicly traded copper producer battles to preserve cash in a deepening commodity meltdown. Shares surged.
The measures include lowering expenditures at its energy operations, additional curtailments in copper and molybdenum output and the suspension of its common stock dividend, the company said in a statement Wednesday.
Freeport becomes the second big miner in two days to halt dividends and downsize operations after Anglo American Plc said Tuesday it planned to shed assets to stay afloat with prices showing no signs of a recovery from the lowest levels in six years. Freeport is being further squeezed by oil’s more than 60 percent plunge from a 2014 peak.
The Phoenix-based company’s latest efforts follow cutbacks announced in August, the same month activist investor Carl Icahn said he intended to pressure the company to cut costs, rein in executive compensation and shrink high-cost production. In October, Freeport reported its fourth straight quarterly loss after recording a $3.5 billion net charge tied to the oil and gas division.
“As we approach 2016, we are positioning the company for free cash flow generation in a weak commodity price environment and remain focused on actions to reduce debt,” Chairman James “Jim Bob” Moffett and Chief Executive Officer Richard Adkerson said in the statement.
Freeport shares jumped 5 percent to $7.08 at 1:08 p.m. in New York on Wednesday, leading gains in the Bloomberg Americas Mining Index. The stock has plunged 72 percent in the past year compared with a 13 percent average drop among peers tracked by Bloomberg.
In oil and gas, the company reduced capital expenditures from $2 billion a year in 2016 and 2017 to $1.8 billion in 2016 and $1.2 billion in 2017, and lowered rig utilization from three Deepwater Gulf of Mexico drillships to one. It’s in talks with service providers to reduce costs and is evaluating ways to market idled equipment to third parties.
Freeport invested heavily in oil and gas in 2013 with the acquisitions of McMoRan Exploration Co. and Plains Exploration & Production Co., swelling its debt just ahead of a downturn in energy prices.
“The revised plans, together with initiatives to obtain third-party financing or other strategic alternatives, will be pursued with the goal of achieving funding for oil and gas capital spending within its cash flows and resources,” it said.
In mining, Freeport will shutter its Sierrita mine in Arizona as part of a plan to increase curtailments to about 350 million pounds of copper and 34 million pounds of molybdenum a year. The company is also evaluating other financing alternatives and the potential sale of minority interests in some assets for debt reduction purposes.
The board suspended its annual common stock dividend of $0.20 a share to save about $240 million a year. Assuming a copper price of $2 a pound and Brent crude at $45 a barrel, Freeport estimates its consolidated operating cash flow will exceed capital expenditures by more than $600 million.
The company also reached an agreement with banks to amend the net debt-Ebitda ratio under its revolving credit facility and $4 billion term loan. The previous limit of 4.75 to 5.5 will be lifted to 5.9 for the first half of 2016 before going back down to 5 by end 2016 and 4.25 in 2017, it said.
“These are all positive steps for Freeport,” Jefferies LLC analysts Christopher LaFemina and Steven Hancock wrote in a note to clients. “However, we remain concerned that the company appears hesitant to pursue asset sales and has limited additional levers to pull if commodity prices decline further.”