Melbourne - Freeport-McMoRan, the US copper producer that’s seeking to cut debt after the rout in commodities hammered prices, agreed to sell an additional 13 percent stake in its Morenci mine in Arizona to Sumitomo Metal Mining for $1 billion.
The transaction will cut Freeport’s stake in the open-pit mine to 72 percent from 85 percent, while 28 percent will be owned by Sumitomo Metal, as well as unit that’s jointly owned with Sumitomo, according to a statement on Monday. Freeport expects to record a gain of about $550 million on the deal, it said.
Commodities producers including miners are cutting debt, trimming production and slashing spending as copper prices trade near a six-year low. Freeport, which is seeking to cut its 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 CEO 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 CEO 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 and sent the Bloomberg Commodity Index to the lowest in more than 20 years. Freeport shares are down 72 percent in the past year. After the commodities super-cycle propelled Freeport’s market value above $56 billion in late 2010, it’s now worth about $6 billion.
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The deal is expected to be completed in mid-2016, Sumitomo Metal said in a separate statement. The company is seeking to raise its annual copper production interest to 300,000 metric tons, it said. 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, and First Quantum Minerals 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 1 123.0 yen in Tokyo trading, paring its decline this year to 24 percent. The deal announcement was made after the stock market closed.