Freeport-McMoRan’s (FCX) energy business has long been a bone of contention with investors. Many argue that the company shouldn’t have ventured in to energy exploration at all, stretching its balance sheet in the process. But now, Freeport-McMoRan is looking at “strategic alternatives” for its energy business.
The company has not yet decided on the strategic path that the energy business will pursue. Still, it announced further capital expenditure cuts in its energy business. The company plans to spend $1.8 billion in 2016 and $1.2 billion in 2017 on energy capex. The capex plan has been downwardly revised from the prior guidance of $2 billion in spending in 2016 and 2017. The response was necessitated as a result of a steep fall in crude oil prices. You can see the recent price movements in Freeport-McMoRan, copper, and WTI in the chart above.
The company hasn’t announced capex cuts in its mining business. It’s in the midst of an expansion of its Cerro Verde mine. The company expects incremental annual production of 600 million pounds of copper and 15 million pounds of molybdenum after the project completes.
Freeport-McMoRan is also expected to invest $15 billion in its Grasberg mine in Indonesia (EIDO) over the next few years. But this will only happen if it’s able to sign a long-term agreement with the Indonesian government. Rio Tinto (RIO) is Freeport-McMoRan’s partner in the Grasberg mine.
Please note that in the longer term, copper looks better placed than other industrial metals. You can read Copper’s Long-Term Outlook Looks Better to learn more. Southern Copper (SCCO) and Turquoise Hill Resources (TRQ) are among the major pure-play copper producers.
In the next part of this series, we’ll analyze what investors make of FCX’s dividend suspension.