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Freeport’s Asset Sales Timeline: Why It’s a Key Price Driver

Mark O'Hara

Understanding the Strategic Importance of Freeport’s Asset Sales

(Continued from Prior Part)

Asset sales timeline

Freeport-McMoRan (FCX) was trading at $3.94 on January 25, 2016, a day before its 4Q15 earnings release. The company did beat consensus earnings estimates in 4Q15, but the key takeaway from the company’s earnings conference call was the announcement of its asset sales program.

However, Freeport’s intent to raise between $5 billion–$10 billion looked like an uphill task when considering the prevailing Market sentiments.

Morenci stake sale

Then came the Morenci stake sale announcement on February 15. The Morenci stake sale was received well by the Markets (DIA), and Freeport saw an upward price action of more than 15%. The Markets had a couple of reasons to feel optimistic about this transaction. Firstly, it helped FCX strengthen its balance sheet. The second reason was the deal’s valuation multiple.

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Freeport-McMoRan’s stake sale in its Morenci mine was an indication of copper’s better long-term fundamentals. No wonder—while diversified miners like BHP Billiton (BHP) and Rio Tinto (RIO) (TRQ) are cutting their capital expenditures, they still have an appetite for copper assets.

As you can see in the chart above, there has been no looking back for Freeport after the Morenci stake sale. After Morenci, Freeport announced two relatively smaller asset sales, one each in March and April.

However, Freeport’s integration of energy business was not received well by the Market, as it implied that the company might not totally exit the energy business.

1Q16 earnings

There were apprehensions that Freeport might back off its asset sales program as commodity cycle is now showing some signs of a turnaround. However, during its 1Q16 earnings call, the company’s management reiterated its commitment to the asset sales program. This provided fodder to Freeport bulls to bid the stock even higher.

Meanwhile, in its 1Q16 call, Freeport touched upon the importance of asset sales. We’ll discuss this more in the next part of the series.

Continue to Next Part

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