Money manager Adrian Day discusses two companies in his portfolio that he says have had meaningful recent developments, both positive and negative, and that he deems good buys.
Freeport-McMoRan Inc. (FCX, NY, 10.13) can’t seem to get a break. It has hit road blocks on two recent asset sales as well as in Indonesia.
• Freeport announced a deal to sell its oil and gas assets—something the market has long wanted, and key to its recovery—to Anadarko for $2 billion. Though the price tag is not the best, it represents needed funds to pay down debt, and get rid of an expensive distraction. Immediately, a majority of bondholders objected to the sale (though Freeport has sidestepped the objections and will proceed with the sale.)
• The state-owned mining company in the Congo has objected to Freeport’s plan to sell its interest in the Tenke Fungurume copper mine, to a Chinese company, for $2.65 billion, another important step in reducing debt and, again, getting rid of a troublesome asset. (Partner Lundin has a right of first refusal, but may also look to exit.) Gecamines, the government outfit, said it has the right to buy Freeport’s interest (which contractually it does not) and also accused Freeport of “fraud: by undervaluing the asset.”
• Freeport continues its big capital spend at Grasberg without a long-term contract to operate or license to export. Now a labor strike has suspended operations there.
Problems nearly solved
If both the Congo and oil sales went through, they would bring total proceeds from asset sales this year to over $6 billion, sufficient for the company to have no need for additional sales (though we still expect some kind transaction on Grasberg). Freeport would remain a copper-focused company, with world-class assets, mostly in safer jurisdictions, positive cash …read more