Freeport Sells $1 Billion Mine Stake as Sumitomo Bets on Reboundby
Freeport-McMoRan had flagged asset sales to help cut debt
`Prices will eventually come back,' Sumitomo's Nakazato says
Freeport-McMoRan Inc. agreed to sell an additional stake in one of its biggest mines to Sumitomo Metal Mining Co. as the world’s top publicly traded copper producer battles to rein in debt after prices collapsed.
The $1 billion deal will cut Freeport’s stake in the Morenci open-pit mine in Arizona to 72 percent from 85 percent, according to a statement Monday. Freeport said it expects to record a gain of about $550 million on the deal. Its shares jumped as much as 9.9 percent in Frankfurt with U.S. markets closed.
Producers are cutting debt, production and spending in a rout that sent the Bloomberg Commodity Index to the lowest in more than 20 years. Freeport, which is seeking to lower debt by $5 billion to $10 billion, last month flagged it would consider deals involving core operations, which include Morenci. The rout in raw materials is putting pressure even on major operators, potentially spurring sales of top-tier mines, Rio Tinto Group’s Chief Executive Officer Sam Walsh told Bloomberg Television last week.
“This transaction represents an important initial step toward our objective to accelerate debt reduction and restore our balance sheet while retaining a portfolio of high-quality assets and resources,” Freeport Chief Executive Officer Richard C. Adkerson said in a statement on Monday.
Adkerson is battling to convince investors, including activist Carl Icahn, that enough is being done to shore up finances in a rout that spurred five straight quarterly losses.
Freeport shares are down 72 percent in the past year as crude’s collapse highlighted its ill-fated move back into the oil business and copper breached the $2 a pound level. After the commodities super-cycle propelled Freeport’s market value above $56 billion in late 2010, it’s now worth $6.4 billion. Standard & Poor’s lowered its credit rating to junk on Friday, less than a month after Moody’s Investors Service did the same.
The Morenci deal is expected to be completed in mid-2016, Sumitomo Metal said in a separate statement. Seeking to raise its annual copper production interest to 300,000 metric tons, the company “decided to acquire an additional interest in the Morenci mine, which is currently the largest copper producer on the North American continent and has an attractive cost structure,” Sumitomo Metal said.
Freeport, Anglo American Plc, and First Quantum Minerals Ltd. are among producers with assets likely to be targeted for deals by competitors, Paul Gait, an analyst at Bernstein in London, said in a note Friday.
“Non-ferrous metals is a growth industry,” Yoshiaki Nakazato, president of Sumitomo Metal Mining, said at a briefing in Tokyo on Monday. “Prices will eventually come back.”
Sumitomo Metal Mining closed up 8.3 percent to 1,123 yen in Tokyo, paring its decline this year to 24 percent. The deal announcement was made after the stock market closed.