This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Freeport-McMoRan Shifts Into Overdrive

Freeport will lever up its balance sheet and walk away from these acquisitions with roughly $20 billion in debt (from approximately $3.5 billion pre-deal). And, interestingly, the deals are somewhat incestuous as Freeport and Freeport management had various stakes in its target companies since these companies had been a part of Freeport McMoRan back in the mid '90s.

Investors have voiced concerns over the "self-dealing" nature of these deals and while we think it's unlikely to be the true motivation for the deal, Freeport's negative stock reaction has likely evened out management's payday due to their Freeport McMoRan stock holdings decline in value.

Also, management did not need to seek investor approval for these seismic shift deals due to the intentional structure of the deals, angering the investor base. We believe the company saw a chance to diversify both its commodity and geographic exposures during a period where acquiring debt is cheap and natural gas related assets are out of favor. We believe management is looking forward and we are too.

Of the to-be-acquired oil and gas assets, approximately 85% of the revenue produced will be from oil resources. Freeport will have oil production in California, in the Eagle Ford play in Texas, shallow water and deep water plays in the Gulf of Mexico and natural gas plays in Haynesville, La. and the Rocky Mountains.

The company expects to close the deals sometime in the second quarter of 2013. Freeport estimates that the company will see approximately 74% of its EBITDA from mining in 2013 -- with the balance being oil and gas exploration and production -- two-thirds of its EBITDA generated by its mining operations and one-third by its oil and gas business by 2016.

Meanwhile the EBITDA on a geographic basis should be 48% from North America (vs. 29% pre-deal), 23% from Indonesia (31%), 21 % South America (29%) and 8% Africa (11%).

Make no mistake, Freeport is a cash-flow machine, and while near-term cash flows will be used to pay down debt, management has stated the company's $1.25 per share dividend will remain in place, offering investors a 3.7% yield as the company proves its vision.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
FCX $10.50 0.00%
AAPL $113.29 0.00%
FB $91.01 0.00%
GOOG $630.38 0.00%
TSLA $248.48 0.00%

Markets

Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs