We already saw that Freeport-McMoRan (FCX) has reduced its capital expenditure budget for the current year. It’s also looking at asset sales to repay some of its debt. To date, Freeport has completed asset sales of $5 billion. Net of taxes, it has realized $4.3 billion from asset sales. However, it has recently decided to shelve its asset sales.
Commodity prices took a beating last year. The above chart shows that iron ore prices corrected last year. Companies in the metals and mining space are looking to cut their spending targets. Under this scenario, it’s tough finding prospective buyers for commodity assets. Remember that Freeport acquired energy assets when crude oil prices were much higher than the current levels.
Prices of oil and gas assets have also come down with the drop in energy prices. Any company looking to sell these assets will have to settle for lower prices. Freeport has shelved its asset sales program since it hasn’t been able to strike deals at the expected price.
The delay in asset sales means Freeport will miss its debt reduction targets. However, asset sales at depressed prices will be even more detrimental to Freeport shareholders.
Freeport’s energy and mining assets have significant reserves. Although asset prices have dropped, they will bounce back once global commodity markets recover from the current slowdown.
Other copper miners such as Teck Resources (TCK), Southern Copper Corp. (SCCO), and Newmont Mining (NEM) will also benefit if copper prices increase. Newmont currently forms 2.33% of the Materials Select Sector ETF (XLB).
Along with lower commodity prices, Freeport also faces other issues, especially in its Indonesian operations. In the next part, we’ll see how Freeport’s Indonesian operations are shaping up this year.