FCX Freeport McMoRan Inc

Congo asset to be sold to Chinese company for $2.65 billion in bid to cut U.S. firm's debt

By Ben Dummett 

Freeport-McMoRan Inc. agreed Monday to sell its stake in an African copper operation to a Chinese mining-and-processing firm for $2.65 billion, as the Phoenix-based miner looks to pay down debt amid a stream of similar moves by big miners.

Freeport, the biggest U.S. mining company by market value, said it would sell its interests in TF Holdings Limited, a Bermuda holding company that indirectly owns an 80% interest in the Tenke Fungurume mine in the Democratic Republic of the Congo, to China Molybdenum Co. Freeport has a 70% stake in TF Holdings, and an effective 56% interest in Tenke.

The move comes as uneven global economic growth raises concerns over demand for and prices of commodities including copper, which has fallen in price over the last year by 27% to $2.10 a pound and has stagnated so far this year. Weak prices are pushing some of the world's biggest miners to sell assets and shore up their debt-burdened balance sheets as they contend with heavy losses.

The Tenke deal also underscores how China, where demand for foreign mining assets remains strong, is benefiting from the weakened bargaining positions of some sellers to acquire resources cheaply.

China Molybdenum's deal with Freeport is its second transaction in less than a month. The company, which is partly state-owned, agreed in late April to acquire Anglo American PLC's Brazilian niobium and phosphates business for $1.5 billion. Phosphates are a key ingredient used to make fertilizers while niobium helps to make steel stronger.

Other Chinese companies have targeted gold mines. Last year, China's Zijin Mining Group agreed to buy a 50% stake in the unit that manages Barrick Gold Corp.'s Porgera gold mine in Papua New Guinea.

While many big miners are selling assets, Freeport has been under increasing pressure to reduce its debt since August, when activist investor Carl Icahn disclosed the purchase of a stake in the miner. Since then, Freeport has suspended its dividend, cut capital spending, and announced the resignation of longtime Chairman James R. Moffett, an oil wildcatter who also developed the company's Grasberg mine in Indonesia, one of its so-called super mines.

Since the beginning of this year, Freeport has announced more than $4 billion in asset-sale transactions.

By selling the Tenke stake, Freeport is reducing its exposure to a politically risky area without undermining its ability to increase copper production.

The Tenke mine operation is about 110 miles northwest of Lubumbashi in the Katanga province, and as of the end of December had recoverable reserves of 7.2 billion pounds of copper.

But the sale of conflict minerals, including tin, tantalum, tungsten and gold, has made it a "challenging operating environment," as proceeds used by rebels to buy weapons spur "regional conflicts and attacks against innocent civilians," noted Lundin Mining Corp., a minority owner in the Tenke project, on its website.

Freeport also owns assets in the Grasberg minerals district in Indonesia, one of the biggest copper and gold deposits, as well as the Cerro Verde complex in southern Peru, which is expected to produce over a billion pounds of copper in 2016.

"We are committed to our immediate objective of reducing debt, while retaining...a leading position in the global copper industry," Freeport Chief Executive Richard Adkerson said in a statement.

Freeport had a debt load of about $20.8 billion at the end of March and reported a $4.2 billion loss for the first quarter, largely due to the declining book value of its oil and gas assets. The company made a big bet on energy in 2013 when it bought McMoRan Exploration Co. and Plains Exploration & Production Co. for a total of $9 billion, a deal that added to the company's debt load ahead of a steep decline in energy prices.

Last month, Freeport announced it would cut 25% of the oil-and-gas workforce, or 325 jobs, as part of an overall restructuring in that business. The company said it is evaluating options for the oil-and-gas business, including possible asset sales or joint-venture arrangements.

In addition to the TF Holdings transaction, Freeport said it would negotiate exclusively with China Molybdenum to enter into agreements to sell its interests in joint venture Freeport Cobalt, which includes the Kokkola Cobalt Refinery in Finland, for $100 million. The company also seeks to sell the Kisanfu Exploration project in the Democratic Republic of Congo for $50 million.

--Joshua Jamerson contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

May 10, 2016 02:49 ET (06:49 GMT)

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