Commodities & Metals

Freeport’s Big Spending Not So Bad -- Moody’s

Oil pumpjack
Thinkstock
After getting pummeled for two days, shares of Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) are getting a bit of boost today following an announcement from Moody’s that the proposed $9 billion deal ($20 billion including assumed debt) for two energy companies would not downgrade Freeport’s debt ratings. Moody’s has maintained its investment grade ‘Baa3’ ratings on Freeport’s senior unsecured debt.

The ratings agency did lower Freeport’s outlook from ‘positive’ to ‘stable’. Freeport said Wednesday that it will pay $6.9 billion for Plains Exploration & Production Co. (NYSE: PXP) and $2.1 billion for McMoRan Exploration & Production Co. (NYSE: MMR).

Freeport’s stock has taken a beating over the fact that investors don’t think that a mining company can also become an energy company. Freeport spun off McMoRan in 1994, so the company at least has some history there.

The one thing that Freeport may bring to the acquisitions is its experience at running low-cost operations. Moody’s notes:

[Freeport’s] ‘s Baa3 senior unsecured rating reflects the company’s significant reserve profile in copper, gold and molybdenum, and the low cost nature of its mining operations — particularly its operations in Indonesia, which allows the company to continue to generate solid earnings and cash flow despite volatility in the metal prices.

Freeport’s relatively low leverage before the acquisitions contributed to Moody’s rating, but it is still possible that the investments required to bring in some of the better prospects that belong to Plains and McMoRan are going to be very large and cash flow from copper and gold mines won’t entirely do the trick. More debt or dilution could well be in Freeport’s future.

Freeport’s shares are up 3% today at $31.73 in a 52-week range of $30.54 to $48.96. Shares traded above $38 on Tuesday, before the acquisitions were announced.

Paul Ausick

Take This Retirement Quiz To Get Matched With An Advisor Now (Sponsored)

Are you ready for retirement? Planning for retirement can be overwhelming, that’s why it could be a good idea to speak to a fiduciary financial advisor about your goals today.

Start by taking this retirement quiz right here from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes. Smart Asset is now matching over 50,000 people a month.

Click here now to get started.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.