Item 1.01
Entry into a Material Definitive Agreement
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On May 9, 2016, Freeport-McMoRan Inc. (the “Company”) entered into a Stock Purchase Agreement among CMOC Limited, a Hong Kong corporation (“Buyer”), China Molybdenum Co., Ltd., a Chinese corporation (“Buyer Guarantor”), and Phelps Dodge Katanga Corporation, a Delaware corporation and a wholly owned subsidiary of the Company (“Seller”), pursuant to which Seller has agreed to sell its effective 56 percent ownership interest in Tenke Fungurume Mining S.A. (“Tenke”) to Buyer for (1) $2.65 billion in cash payable at closing and (2) contingent payments of up to $120 million in cash, comprised of $60 million if the average price of copper exceeds $3.50 per pound and $60 million if the average price of cobalt exceeds $20.00 per pound, in each case during calendar years 2018 and 2019 (the “Stock Purchase Agreement”).
Pursuant to the Stock Purchase Agreement, Seller has agreed to sell to Buyer all of the issued and outstanding ordinary shares of its wholly owned subsidiary, Freeport-McMoRan DRC Holdings Ltd., a Bermuda exempted company, which is the owner of 70 percent of the outstanding capital stock of TF Holdings Limited, a Bermuda exempted company. TF Holdings Limited is the direct or indirect owner of 80 percent of the outstanding capital stock of Tenke, a public limited liability company under the laws of the Democratic Republic of Congo.
The consummation of the transactions contemplated by the Stock Purchase Agreement is subject to certain specified closing conditions, including: (a) the receipt of certain regulatory approvals from governmental entities of the People’s Republic of China (the “PRC Approvals”); (b) the receipt of certain other regulatory approvals, including approvals under non-U.S. antitrust laws; (c) the expiration or waiver of a right of first offer (the “ROFO”) held by Tenke Holdings Ltd. (“THL”), an affiliate of Lundin Mining Corporation; (d) the approval by holders of at least two-thirds of the outstanding shares of capital stock of Buyer Guarantor; and (e) other customary closing conditions, including, subject to certain materiality exceptions, the accuracy of each party’s representations and warranties and each party’s compliance with its obligations and covenants under the Stock Purchase Agreement. Concurrently with the execution of the Stock Purchase Agreement, shareholders of Buyer Guarantor holding 63 percent of the outstanding shares of capital stock of Buyer Guarantor delivered to Seller an undertaking to vote the shares of Buyer Guarantor beneficially owned by them in favor of the transactions contemplated by the Stock Purchase Agreement. The transactions contemplated by the Stock Purchase Agreement do not require the approval of the Company’s shareholders.
Subject to the satisfaction or waiver of the foregoing conditions and the other terms and conditions contained in the Stock Purchase Agreement, the transaction is expected to close in the fourth quarter of 2016.
The Stock Purchase Agreement contains representations, warranties, and indemnification provisions of the parties customary for transactions of this type. Until the consummation of the transactions contemplated by the Stock Purchase Agreement, Seller has agreed, subject to certain exceptions, to conduct the Tenke business in the ordinary course.
The Stock Purchase Agreement contains certain termination rights for Buyer and Seller, in certain circumstances, including: (a) by mutual written agreement of the parties; (b) by either party if the transaction is not consummated on or before February 9, 2017, provided that at such time the party seeking to terminate is not in material breach of its obligations under the Stock Purchase Agreement; (c) by either party if the transaction would violate any non-appealable final order, decree or judgment of any governmental authority or any applicable law; (d) by either party for certain breaches of the Stock Purchase Agreement that are not cured; (e) by either party following receipt by Seller or one of its affiliates of a notice of acceptance of the ROFO from THL; (f) by either party if Buyer Guarantor’s shareholders do not approve the transactions contemplated by the Stock Purchase Agreement; or (g) by Seller if Buyer fails to deliver a letter of credit securing Buyer’s performance of its obligations under the Stock Purchase Agreement, including the payment by Buyer of its termination fee described below.
If the Stock Purchase Agreement is terminated (1) as a result of a failure by Buyer to obtain the required PRC Approvals or (2) as a result of a failure by Buyer Guarantor to obtain its required shareholder approval, then Buyer would be required to pay Seller a termination fee of $132,500,000.
If the Stock Purchase Agreement is terminated as a result of the exercise of the ROFO by THL, then Seller would be required to pay Buyer a termination fee of $20,000,000.
The foregoing description of the Stock Purchase Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated by reference herein.