Energy

Why Freeport-McMoRan Shares Leaped 10%

Paul Ausick

Published: May 16, 2016 12:35 pm

Last Updated: January 13, 2020 7:59 am

Gold, copper and oil producer Freeport-McMoRan Inc. (NYSE: FCX) traded as much as 10% higher Monday morning, and it is likely due to a confluence of modest improvements rather than a single big booster.

Crude oil prices, for example, are up about 3%, with benchmark West Texas Intermediate (WTI) for June delivery trading around $47.65, after reaching a morning high of $47.85. Copper closed at around $2.07 on Friday and traded up about 4% at around $2.15 a pound. These are both positive signs for Freeport, but not enough on their own to take the stock up 10%.

The bigger push likely was provided by the company’s Monday filing related to its issuance of $540 million in stock to Noble Corporation PLC (NYSE: NE) to pay the cancellation fee on two drillship contracts it had with the London-based drilling company. Freeport said it has issued the shares to Noble and its agents, J.P. Morgan Securities and HSBC Securities, for resale “by means of ordinary brokers’ transactions on the New York Stock Exchange (‘NYSE’) at market prices or as otherwise agree with one or more of the sales agents.”

That means that Freeport will not be buying Noble bonds to pay for the cancelled rigs, nor will it have to come up $540 million in cash. The stock issuance is the best deal for Freeport and, given that it will be sold at market rates with no discount, is further good news for existing Freeport shareholders.

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Even better, as we noted last week, had Freeport maintained the contracts with Noble the company would have paid $800 million to explore for and perhaps find oil that would not return the cost of drilling for it. The company just saved about $250 million.

The company also announced the sale last week of an African cobalt and copper mine for $2.65 billion. Coupled with the sale of a 13% stake in its Morenci mine for $1 billion and another sale of a Serbian copper mine for $263 million, Freeport has sold assets valued at $3.9 billion so far this year against a target of $4 billion the company said it would use to pay down debt.

Freeport stock traded up about 7.8% in the noon hour Monday, at $11.22 in a 52-week range of $3.52 to $22.68.