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Freeport-McMoRan’s Survival Plan: Key Investor Takeaways

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Freeport-McMoRan’s survival plan

On December 9, Freeport-McMoRan (FCX) announced several strategic steps in response to rapidly deteriorating market conditions. It’s important to note that commodity prices have continued their downward momentum over the last month. This has necessitated an aggressive response from all commodity producers.

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Strategic actions

Freeport-McMoRan has announced three major strategic actions. These steps are more of a survival plan for Freeport-McMoRan. Let’s see what these steps are.

  • The company will further curtail its copper and molybdenum production.
  • It slashed its capital expenditure budget for 2016 and 2017.
  • It has suspended its dividend (DVY) program altogether. Freeport-McMoRan isn’t alone in suspending dividends. Other commodity producers—including Glencore (GLNCY) and ArcelorMittal (MT)—have also suspended their annual dividends. However, mining giants BHP Billiton (BHP) and Rio Tinto (RIO) are still doling out generous dividends.

The SPDR S&P Global Natural Resources ETF (GNR) can give you diversified exposure to international natural resources companies. Almost one-quarter of GNR’s holdings are invested in metal companies.

Series overview

Freeport-McMoRan’s announcements were received well on Wall Street. The stock rose more than 10% intraday but gave away most of its gains to close at $6.99—gaining 3.7% from its previous day’s close. However, market response was much more circumspect this time compared to Freeport-McMoRan’s previous strategic moves. When the company announced spending cuts in August, the stock soared more than 28%.

In this series, we’ll explore what the recently announced strategic actions mean for Freeport-McMoRan investors. The company has revised its 2016 cash flow guidance. We’ll also analyze how realistic Freeport-McMoRan’s 2016 guidance looks this time. This should help you understand whether its latest actions will help the company survive the current slump in commodity prices.

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