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How Does Freeport’s Balance Sheet Look Heading into 2017?

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Feb. 3 2017, Updated 9:06 a.m. ET

Freeport’s balance sheet

In the previous article, we noted that Freeport-McMoRan (FCX) generated positive free cash flow in 2016. In this article, we’ll look at Freeport’s leverage metrics to understand its balance sheet strength.

A company’s net debt is its total debt minus its cash and cash equivalents. Freeport’s net debt was negative in 4Q12, which basically means that the cash on its balance sheet was more than its borrowings.

However, Freeport had to borrow heavily to acquire energy assets in 2013, increasing its debt level, as we can see in the graph above.

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Asset sales program

During its 4Q15 earnings conference call, Freeport 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 put the company’s survival into question. Other miners (GLNCY) including Teck Resources (TCK), BHP Billiton (BHP), and Rio Tinto (RIO) also took measures to strengthen their balance sheets.

Balance sheet looks better now

Freeport raised $6.6 billion in 2016 through asset sale transactions. The company also raised another $1.5 billion through an at-the-market equity offering. As a result of these measures and Freeport’s free cash flow generation, its net debt fell to $11.8 billion at the end of 2016, compared to $20.1 billion at the end of 2015. The company’s balance sheet looks to be in a much better position after these transactions.

Furthermore, Freeport’s debt levels could fall even more in 2017. We’ll discuss this further in the next article.

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