By Chelsey Dulaney and John W. Miller
Activist investor Carl Icahn disclosed a stake in copper miner
Freeport-McMoRan Inc. on Thursday, saying its shares are
undervalued and that he plans to talk with management about its
costs.
Mr. Icahn said in a filing that he intends to have discussions
with Freeport-McMoRan's board and management about the company's
capital expenditures, executive compensation practices, capital
structure and curtailment of its "high-cost production
operations."
Mr. Icahn also may seek board representation, the filing
said.
A group including Mr. Icahn holds an 8.46% stake.
The criticisms come after Freeport-McMoRan outlined plans on
Thursday morning to cut its capital-spending plans for 2016 by 29%
and reduce head count at U.S. mining operations as copper prices
near six-year lows--which sent shares up 29% in the regular trading
session. After Mr. Icahn disclosed his stake, shares climbed a
further 18% to $51.89 after hours. The stock has been beaten
down--it hasn't seen $50 a share since 2011.
Mr. Icahn is known for acquiring big stakes in companies and
agitating for changes, and has shaken up the boards of directors at
Chesapeake Energy Corp., Transocean Inc. and CVR Energy Inc., among
others.
Freeport's new expense reductions, which could include
eliminating around 1,560 jobs, come after the Phoenix-based miner
cut its oil-and-gas spending plans earlier this month and said it
would review its mining operations.
Freeport, which has been struggling with the effect of weak
commodity prices, said it now expects capital spending of $4
billion next year, down 29% from its July estimate of $5.6
billion.
It also said it would cut planned 2016 copper production by 150
million pounds, or 2.8% of the 5.4 billion pounds it had previously
forecast. Its earlier 2016 forecast called for a 29% increase in
production from current levels.
Like many mining companies, Freeport has suffered from a
perception by investors that it had overextended itself during the
commodities boom earlier this decade.
The retrenchment by Freeport, which mines copper in Arizona,
Latin America, Indonesia and the Democratic Republic of Congo, is
significant because the company had taken one of the mining world's
most bullish stances on the metal, used in pipes and wiring.
However, Freeport said on Thursday it was time to "respond
aggressively to current market conditions." Copper prices are
currently averaging $2.25 per pound, 27% lower than last year, and
"near a six-year low," the company said.
At that level, spending would come in far below the $6.3 billion
in expenditures Freeport is estimating for this year. Freeport has
already pared its 2015 capital budget by about 16% since late
2014.
The 2016 forecasts include a 25% cut to mining spending and
reductions in copper sales and site production, including a
suspension of operations at its Miami, Ariz., mine and reductions
at its Tyrone, N.M., mine.
Freeport said it expects a 10% reduction in employees and
contractors at U.S. mining operations. As of Dec. 31, 2014,
Freeport employed 13,200 people, along with 3,400 contractors, at
its U.S. operations, according to securities filings.
The company cited recent declines in copper prices, which are
nearing six-year lows, for the cuts. Freeport said it still has a
positive outlook on its business, helped by limitations on copper
supply.
Freeport earlier this month cut its oil-and-gas capital spending
views for 2016 and 2017 by $900 million to $2 billion a year. The
company maintained its expectation for $2.8 billion in spending for
this year. Freeport said it also would look for strategic investors
to help fund development at oil-and-gas and mining properties.
In July, after reporting its second straight quarterly loss, the
company had said it was prepared to scale back operations if
commodity prices didn't recover
A downturn in commodity prices has hit miners across the board.
But Freeport is relatively fortunate to be mining copper and not
iron ore, the key ingredient in steelmaking, which is far more
oversupplied. And Freeport has managed to keep costs at most of its
mines far below current copper prices, helped by lower oil prices,
the strong dollar and mining in developing countries.
Josh Beckerman contributed to this article
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and John W.
Miller at john.miller@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 27, 2015 16:56 ET (20:56 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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