The lesson so far of 2016 is things can always get worse. Copper futures fell on Monday and shares of Freeport-McMoran (FCX) along with them.
The story of Freeport, the Arizona-based natural resources company, represents a monumental mix of bad luck and timing. Its assets, which can hardly be called such at today's prices, are in oil and gas, and copper. Both oil and copper tested new lows on Monday, as they have been wont to do lately. The price of oil fell below $32 a barrel while copper futures fell to $1.97 a pound, according to data provided by Bloomberg. Shares of Freeport were down 20% as of late-day trading on Monday.
Freeport's stock also likely wasn't helped by Missouri-based Arch Coal (ACI) filing for Chapter 11 bankruptcy protection on Monday. The move was another confirmation as to how bad things are in the mining industry.
While Anthony Young, an analyst at Macquarie research, said in a note released on Friday that Freeport has the "best portfolio of copper assets," he noted the company also has a significant debt load, which stands at $20 billion.
Adding to its problems, according to Young, was Freeport's decision to acquire oil and gas assets near the peak of the cycle in 2012. Freeport made a controversial addition to its energy holdings in May 2014 through its $1.4 billion acquisition of oil-producing interests in Gulf of Mexico deepwater region. The company used proceeds from its sale of Eagle Ford assets to complete the transaction. Given that the price of oil entered freefall in July 2014 and some of the assets Freeport acquired were in development, the timing of the acquisition could be viewed as unfortunate. At the time, Freeport said production at the newly acquired Heidelberg unit would begin in mid-2016.
"Our preference would be for the company to spin off its energy assets, but the company has not firmly committed to this plan," Young said.
In December, Freeport announced that it was deferring investments in its oil and gas projects in response to low energy prices and was reducing its Deepwater Gulf of Mexico drillships from three to one. At that time, the company announced other cost-cutting measures, which included suspending its dividend and curtailing production in its mining business.
With copper and oil prices hitting new lows every few days, Freeport might find that it doesn't have much more to cut.
