Freeport-McMoRan Inc. (NYSE:FCX) announced that it has entered into a definitive agreement to sell its interests in TF Holdings Limited (TF Holdings) to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash and contingent consideration of up to $120 million, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, both during the 24-month period between 2018 and 2019.
TF Holdings is a Bermuda holding company that indirectly owns an 80 percent interest in Tenke Fungurume Mining S.A. (Tenke). FCX has a 70 percent interest in TF Holdings and an effective 56 percent interest in Tenke.
In addition, FCX has agreed to negotiate exclusively with CMOC to enter into definitive agreements to sell its interests in Freeport Cobalt, including the Kokkola Cobalt Refinery in Finland, for $100 million and the Kisanfu Exploration project in the Democratic Republic of Congo (DRC) for $50 million.
Freeport Cobalt includes the large-scale cobalt refinery located in Kokkola, Finland, and related world-wide sales and marketing business, in which FCX holds an effective 56 percent interest. Kisanfu is a copper and cobalt exploration project, located near Tenke in which FCX holds a 100 percent interest.
Richard C. Adkerson, FCX’s President and Chief Executive Officer, said, “This transaction is another significant step to strengthen our balance sheet and enhance value for shareholders. Since the start of 2016, we have announced over $4 billion in asset sale transactions. We are committed to our immediate objective of reducing debt while retaining a large portfolio of high quality assets and resources and a leading position in the global copper industry.”
Mr. Adkerson continued, “We congratulate our team on developing Tenke Fungurume to its premier status as a highly successful mining operation. We are confident that CMOC will continue to build on Tenke Fungurume’s past success and future development potential, and will continue a commitment to provide a safe, productive work environment and a sustainable future with substantial benefits to the Congolese government and local community. FCX is a proud partner of the DRC and is committed to ensuring an effective transition through a services agreement to provide continuity of operations.”
Freeport does not expect the transaction to impact Tenke’s operations, employment, taxes and benefits provided to the DRC.
Since the project’s inception, Tenke has paid approximately $1.5 billion in taxes and related payments to the Public Treasury and other public administration services of the DRC. The current operation provides employment to approximately 3,400 full time operational workers and 4,200 contractors. Approximately 98% of the operational employees and 93% of the contract work force are DRC citizens. As of December 31, 2015, Tenke had consolidated recoverable reserves totaling 7.2 billion pounds of copper and 874 million pounds of cobalt. FCX reported consolidated Tenke sales for the year 2015 totaling 467 million pounds of copper and 35 million pounds of cobalt at a net unit cash cost of $1.21 per pound of copper.
The TF Holdings transaction is expected to close in the fourth quarter of 2016, subject to regulatory approvals, CMOC shareholder approval and other customary closing conditions. The shareholders of CMOC holding approximately 63% of the outstanding shares have undertaken to vote in favor of the resolutions to approve the transaction. The transaction is subject to Lundin Mining Corporation’s right of first offer (“ROFO”), which will be open for 90 days from receipt of the ROFO notice.
Under the terms of the exclusivity agreement, Freeport has agreed to negotiate exclusively with CMOC until December 31, 2016, with respect to the sale of the Freeport Cobalt and Kisanfu interests in separate transactions. The sale of the Freeport Cobalt interests would be subject to a ROFO from Lundin Mining Corporation.
FCX does not expect a material gain or loss on the transaction and expects to use the net proceeds to repay debt.
FCX is a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX is the world’s largest publicly traded copper producer.
FCX’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America; the Tenke Fungurume minerals district in the DRC; and significant U.S. oil and natural gas assets principally in the Deepwater GOM and in California. Additional information about FCX is available on FCX’s website at “fcx.com.” (Original Source)
Shares of Freeport-McMoRan are down over 8% to $10.81 in early trading Monday. FCX has a 1-year high of $23.60 and a 1-year low of $3.52. The stock’s 50-day moving average is $10.96 and its 200-day moving average is $8.42.
On the ratings front, Freeport-McMoRan has been the subject of a number of recent research reports. In a report issued on May 2, Barclays analyst Matthew Korn reiterated a Hold rating on FCX, with a price target of $10, which represents a potential downside of 15.2% from where the stock is currently trading. Separately, on April 28, FBR’s Lucas Pipes reiterated a Hold rating on the stock and has a price target of $9.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Matthew Korn and Lucas Pipes have a total average return of 3.4% and -12.5% respectively. Korn has a success rate of 54.8% and is ranked #1258 out of 3828 analysts, while Pipes has a success rate of 41.3% and is ranked #3700.
The street is mostly Neutral on FCX stock. Out of 12 analysts who cover the stock, 8 suggest a Hold rating , 2 suggest a Sell and 2 recommend to Buy the stock. The 12-month average price target assigned to the stock is $8.00, which represents a potential downside of 32.1% from where the stock is currently trading.