Freeport-McMoran Inc said on Thursday it will slash its mining capital budget by 25 percent next year and cut 10 percent of its U.S. mine staff, as the diversified miner and energy producer attempts to weather an ongoing slump in copper prices.
Shares of Freeport-McMoran, which will suspend operations and lower production at some U.S. mines, surged 22 percent to $9.67 after the announcement.
This marks the latest in a string of cuts from the Arizona-based company, which earlier this month reduced the 2016 and 2017 oil and gas capital budgets by 31 percent to $2 billion per year.
Freeport now plans to spend $2 billion on mining in 2016, for a total capital budget of $4 billion. Last month it cut total spending to $4.7 billion from $5.6 billion forecast in July.
“This is a step in the right direction to stop the bleeding; however, current copper and oil prices restrict the company’s ability to materially de-lever,” Cowen and Co analyst Anthony Rizzuto wrote in a note to clients.
“We believe there is room for additional spending cuts and/or production curtailments, especially in North America and Indonesia.”
To diversify from its copper, gold and molybdenum mining, Freeport acquired two oil and natural gas producers in 2013. Those deals bulked up its debt, which was $20.9 billion at June 30.
If the cuts and plans to raise up to $1 billion through an equity issue and the IPO of a minority stake in its energy business are not enough, asset sales could be next, Jefferies analyst Christopher LaFemina said in a note.
Freeport’s stake in the Cerro Verde copper mine in Peru could fetch $4 billion, the El Abra deposit in Chile $1.1 billion, and the Morenci mining complex in Arizona $1.6 billion, he wrote.
With seven copper mines in North America, Freeport will suspend operations at its Miami mine in Arizona, halve production at Tyrone in New Mexico and “adjust” rates at other U.S. sites, while reducing its workforce by 1,000.
Henderson mine molybdenum production will be cut by 35 percent.
Cash production costs to produce a pound of copper are now estimated at $1.15, down from $1.25 previously.
Seen as a proxy for industrial activity, copper prices sank to six-year lows this week amid ongoing worries over China’s economy.
Freeport lowered its copper sales estimates for 2016 and 2017 by about 150 million pounds. It previously forecast 2016 sales of 5.4 billion pounds.
Reuters
