Freeport McMoRan Inc. is considering selling a minority stake in its portfolio of copper mines, one of the options on the table as the company scrambles to slash its $20-billion (U.S.) debt load, sources familiar with the matter said.
Freeport had initially planned to take part of its energy business public to raise cash. But with oil prices in the dumps and scant investor interest, the company put those plans on the back burner, the sources said.
Now, Arizona-based Freeport is mulling selling a stake of up to 20 per cent in its suite of mining assets in the Americas and maybe Africa, the sources said.
It is unknown how much Freeport is expecting to get or whether the company can find investors willing to buy a stake. One name that has been floated has been China's Citic, a government-owned investment firm, sources said.
A spokesman for Freeport said there was "nothing to discuss at this time" ahead of the company's quarterly earnings call next week. Citic could not immediately be reached for comment.
The company is under intense pressure to halve its debt, the majority of which was incurred four years ago, when it decided to diversify out of mining and spent $20-billion on oil and gas assets during the height of the oil boom.
Oil has since dropped to around $40 a barrel from $100 mid-2014, and Freeport has signalled it will return to focus on its mining operations – an embarrassing and costly reversal.
Freeport's fire sale is the latest from the world's biggest miners. Vale SA, Glencore PLC and Anglo American PLC are all racing to sell assets to reduce their debt.
Toronto-based Barrick Gold Corp. already took painful steps to sell parts of its top-performing mines to strengthen its balance sheet.
The problem now is that it is an even tougher environment for sellers. Apart from gold, metals and minerals are in their fifth year of decline, with copper trading at about $2.30 a pound, down from $4.30 five years ago.
Freeport has already had to sell part of a top asset, Morenci. Simply selling its smaller, non-core mines would likely not allow the miner to reduce its debt by as much as $10-billion.
"They would have to sell a lot to get to $10-billion," said Garrett Nelson, an analyst with BB&T Capital Markets. "They have to shop some of the core assets to meet the debt-reduction goal."
Selling a minority stake in the company's suite of assets would allow the company to retain control and the bulk of the assets.
Freeport owns nearly a dozen copper mines in the Americas, Africa and Indonesia. It has pointed to five key mines that have the potential capacity to produce one billion pounds of copper a year. Those include Morenci in Arizona, Cerro Verde in Peru, Grasberg in Indonesia and Tenke Fungurume in the Democratic Republic of the Congo.
Although it has tried to sell Tenke in the past, it is unknown whether Freeport has revived efforts to sell the African mine.
Freeport's debt-to-EBITDA ratio, a key metric used to determine creditworthiness, is rising to a level that is unsustainable. (EBITDA represents earnings before interest, taxes, depreciation and amortization.)
"They are rising at a rate where they could violate their debt covenants and then their lenders could pull out of their commitments in the credit facility," Mr. Nelson said. "That can be a very ugly situation. They want to try to avoid that."
Activist investor Carl Icahn, who now owns a minority stake in Freeport, has shaken up Freeport's board with two of his directors. Under Mr. Icahn, Freeport has essentially given the company's long-standing chairman James (Jim Bob) Moffett the boot, pushing him into the role of chairman emeritus.