Freeport-McMoRan Inc. FCX has declared more actions to cope with the prevailing difficult market conditions. These include amending its oil and gas capital spending plans, additional curtailments in copper and molybdenum production and suspension of its common stock dividend.
In response to the weak oil and gas market environment, the company has announced plans to defer investments in various long-term projects and also trimmed capital spending from $2 billion for both 2016 and 2017 to $1.8 billion for 2016 and $1.2 billion for 2017, including idle rig costs.
The changed plans also include a reduction in utilization from three Deepwater Gulf of Mexico drillships to one drillship. Production will also be increased to an average of 159 barrels of oil equivalents per day (MBOE/d) in 2016 and 2017 from 150 MBOE/d in the third quarter of 2015. Freeport-McMoRan Oil & Gas (FM O&G) expects to bring 8 wells on stream in late 2015 and 2016 from its successful tie back drilling operations at the Holstein Deep, Horn Mountain and King Projects in the Deepwater Gulf of Mexico.
These projects are expected to add low cost oil production thus helping the cash production costs to reduce from $19 per barrel of oil equivalents (BOE) in 2015 to less than $16 per BOE in 2016 and 2017.
Freeport’s board is undertaking a strategic review of its oil and gas business to assess alternatives designed to increase value to Freeport’s shareholders and attain self financing of the oil and gas business from its cash flows and resources.
Freeport is also reviewing its capital projects and costs in order to yield maximum cash flow. The company earlier announced a 25% reduction in its capital spending for its mining business in 2016 from $2.7 billion to $2 billion, including $0.6 billion in sustaining capital. The company also announced curtailments at its North American and South American mines totaling 250 million pounds of copper and 20 million pounds of molybdenum a year. The company also planning for a full shut-down of its Sierrita mine in Arizona and adjustments to its operating plans from its primary molybdenum mines.
The company will evaluate its mining operating plans and make further adjustments depending on the market conditions.
Moreover, Freeport has suspended its annual common stock dividend of 20 cents per share to save cash amid a weak commodity price environment. This action will provide annual cash savings of about $240 million and further increase Freeport’s liquidity during this period of weak market conditions.
Freeport currently carries a Zacks Rank #3 (Hold).
Some better-ranked mining companies include Nevsun Resources Ltd. NSU, Coeur Mining, Inc. CDE and Taseko Mines Ltd. TGB. All of these stocks carry a Zacks Rank #2 (Buy).
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