Mining company, Freeport-McMoRan Copper & Gold Inc.(FCX) reported on Wednesday that they will be acquiring both Plains Exploration & Production Company(PXP) and McMoRan Exploration Co.(MMR) in the second quarter of 2013.
FCX will purchase PXP for $6.9 billion in cash and stock. The company will also acquire MMR for $3.4 billion in cash, or $2.1 billion of 36% of MMR’s interest currently owned by FCX and PXP. With this acquisition, MMR shareholders will be given a distribution of units in a royalty trust, which will hold 5% interest on MMR’s future production.
This acquisition is expected to make FCX a global leader in the industry, The company will also be acquiring additional high quality equipment. It is expected that this will provide the company with the ability to have easier access to enter new energy markets which will increase margins.
The acquisition of PXP is expected to be very beneficial to the company since its equipment is conveniently located onshore and offshore of the US. PXP’s primary assets include oil facilities in California, and a growing production profile in Texas. MMR focuses on shallow water ultra deep gas, which is located in the Gulf of Mexico and onshore in Louisiana. The company is expected to provide a low cost and long term source of natural gas production.
Richard C. Adkerson, FCX’s President and Chief Executive Officer, commented, “the transaction will add a high quality portfolio of assets with strong current cash flows, significant growth options and complementary exposure to markets positioned for global growth in the developed and developing world and reflects our positive view of the factors that will drive demand for copper and other commodities. The oil and gas assets being acquired possess the asset quality characteristics that we seek in our mining business – large scale assets with long lives, low cost and geologic potential to support growth through exploration and development. We anticipate that attractive debt financing markets and our strong balance sheet will allow us to finance a significant portion of the transaction using low cost debt and enable FCX shareholders to retain the significant value we see in our existing asset base, while enhancing future value generation opportunities. We will not diminish our focus in our mining operations on safe and efficient production, executing our organic growth projects, prudent capital allocation and an entrepreneurial spirit of creating values for our shareholders.”
Freeport-McMoRan shares were down -$5.11, or -13.35% during premarket trading Wednesday. The stock is up 4.05% YTD.
The Bottom Line
Shares of Freeport-McMoran (FCX) have a 3.27% dividend yield, based on last night’s closing stock price of $38.28. The stock has technical support in the $30-$32 price area. If the shares can firm up, we see overhead resistance around the $38-$39 price levels.
Freeport-McMoRan Copper & Gold Inc.(FCX)is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.2 out of 5 stars.