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Copper’s Spike Could Impact Freeport’s Debt Reduction Plan

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Nov. 20 2020, Updated 2:10 p.m. ET

Debt reduction plan

During its 4Q15 earnings conference call, Freeport-McMoRan (FCX) mentioned a debt reduction program to raise $5 billion–$10 billion to shore up its balance sheet. The announcement came at a time when Freeport was fighting to survive. Sagging copper prices, high leverage ratios, and near-term debt maturities questioned the company’s survival.

Other miners including Teck Resources (TCK), BHP Billiton (BHP), and Rio Tinto (RIO) (TRQ) also took measures to strengthen their balance sheets.

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Scene so far

Freeport raised $6.6 billion in 2016 through asset sale transactions. During the company’s 3Q16 earnings call, Freeport’s chair Richard Adkerson said that Freeport wouldn’t look at selling more copper mines. However, Freeport might raise cash from its ongoing at-the-money equity sales program. A stake sale of its Indonesia operations is another option that Freeport could consider.

Organic cash flows

Now, Freeport is banking on its operating cash flows to cut its debt levels. The company expects its net debt to fall to $9.5 billion by the end of 2017 if copper prices average $2.25 per pound. Freeport’s leverage ratios could start to look much more comfortable by next Christmas if copper prices sustain their recent gains.

While Freeport has more or less addressed its balance sheet issues, the issues facing its Indonesia operations are still alive. Read What Issues Does Freeport Face in Indonesia? to find out more.

You can visit Market Realist’s Copper page for ongoing updates on the industry.

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