What Will Be The Impact Of Freeport’s Recently Announced Asset Sales On Its Indebtedness?

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Freeport-McMoRan has announced the signing of an agreement to sell its Deepwater Gulf Of Mexico (GOM) oil and gas assets to Anadarko Petroleum, with debt reduction and a strategic realignment of the company’s business towards its copper mining operations the main reasons for the sale. [1] Freeport had entered the oil and gas business in 2013, hoping to diversify its business and benefit from participation in a market which at that time had robust near term growth prospects. However, given the extended downturn in both copper and oil prices, Freeport has been forced to reconsider its priorities, with the company’s heavy indebtedness amid a bleak business environment impacting its credit rating. [2] In an effort to lower its debt, a large proportion of which can be traced to the acquisition of the oil and gas business, the company completed a stake sale in its Morenci copper mine in May, in addition to announcing the sales of its African copper mining business and a part of its oil and gas business (Deepwater GOM assets). These asset sales could improve Freeport’s Net Debt/EBITDA by around 12%, as illustrated below.

FCX Debt Reduction
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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan
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Notes:
  1. Freeport-McMoRan Announces Agreement to Sell its Deepwater Gulf of Mexico Properties, Freeport-McMoRan News Release []
  2. Moody’s downgrades FCX’s ratings, assigns B1 CFR; outlook negative, Moody’s Investors Service []