Freeport-McMoRan Inc (FCX) Shares Fall as Oil & Copper drops

29 Aug 2015 | Author: | No comments yet »

Carl Icahn Digs Freeport McMoRan and So Do We.

Legendary investor Carl Icahn has set his sights on miner Freeport-McMoRan Inc. saying the corporate shares are undervalued and that he plans on having discussions about government pay and capital expenditures, in response to a submitting. Shares of Freeport-McMoRan (FCX) are up 1.6% today, having calmed down following headlines that Carl Icahn is putting money to work in the beleaguered copper-mining giant.

The struggling miner’s stock has now soared some 33 percent since it announced spending and staff reductions on Thursday – just before the activist investor revealed he owned an 8.5 percent stake. The Arizona-based international company also mines gold and molybdenum and has oil-and-gas operations; its shares are up more than 8% this week, but the stock remain down 55% so far this year. That was despite falling commodities and an overstretched balance sheet, with net debt of more than four times earnings before interest, taxes, depreciation and amortization. Freeport-McMoRan said Thursday that it would cut costs and reduce spending due to falling copper prices and soft economic conditions around the world.

A securities filing shows he spent more than $1.2 billion on the position in Freeport-McMoRan, which has operations in copper mining as well as in oil and gas. Later that day, Icahn disclosed that he had taken an 8.5-percent stake in Freeport-McMoRan, making him the company’s largest shareholder, according to FactSet. The corporate earlier Thursday stated it might minimize its mining finances by 25% subsequent yr and reduce 10% of its mine employees to counter a stoop in commodity costs. Early Thursday, Freeport McMoRan said it would slash its 2016 capital expenditures by 29%, year over year, its second announced spending cut in a month.

Freeport has since made three announcements about cutting spending, culminating in Thursday’s plans to chop mining investment and copper production. Freeport’s three top executives – Chairman James “Jim Bob” Moffett, Chief Executive Richard Adkerson and head of Freeport-McMoRan Oil & Gas James Flores – comprise an office of the chairman that’s bound to overpower lead independent director Gerald Ford. These 2 rounds of material cost cuts roughly off-set the recent impact of commodity price plunges in both copper and oil and do not impact our net present value-based Price Target as reduced cash outlays would be offset by currently low spot commodity prices.

In his filing with the Securities and Exchange Commission, Icahn said he would seek meetings with management and perhaps a seat on the company’s board. Moffett was a part-owner and served on the board with Adkerson and Flores, who at the time ran Plains Exploration, which Freeport bought on the same day. Earlier this year, he said that “a great amount of profit in the next few years will be made by those who hold positions in energy companies.” And so far, many of the wagers he’s placed are sitting in the red. While the company remains in a precarious environment, after falling more than 80% from its 2008 high, the stock may finally be a buy, especially as Icahn’s involvement can unlock value. “If Icahn wants a board seat, the question is not whether he will get one or not, but how quickly he will get one.

When stocks get beaten up like this, it is very easy for an activist to implement its agenda,” according to 13D Monitor, which notes that Icahn got on the boards of Cheniere Energy ( LNG LNG 1.6167760525052024% Cheniere Energy Inc. U.S.: NYSE MKT USD63.48 1.01 1.6167760525052024% /Date(1440795687821-0500)/ Volume (Delayed 15m) : 1843446 AFTER HOURS USD64 0.52 0.8191556395715186% Volume (Delayed 15m) : 58904 P/E Ratio N/A Market Cap 15017717737.164 Dividend Yield N/A Rev. per Employee 420340 More quote details and news » ) less than three weeks after announcing his active stake. “Icahn is one of the best instinct investors of all time and often invests at the right point in a cycle.” Although activist investors and management often do not see eye to eye, Icahn’s suggestions could meet a receptive audience, given that Freeport McMoRan’s stock has fallen so dramatically and management has been scrambling to shore up investor confidence via cost-cuts. But a report last year by Investec found precious little correlation between pay and traditional performance measures meant to align executives with their shareholders. The activist thinks executive pay is too high, even though it was cut last year after shareholders twice expressed their displeasure in non-binding votes. Investors who felt poor investment decisions meant they missed out on the fruits of the boom are scrutinizing how executives are paid during the slump.

While earnings per share will take a big hit this year, analysts expect EPS to surge from 50 cents in 2015 to $1.77 next year and to nearly $3 in 2017.

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