As Freeport-McMoRan (FCX) continues to address its burdensome debt load, activist investor Carl Icahn supports the company's latest move.
The mining giant announced that its oil and gas subsidiary is selling its Deepwater Gulf of Mexico properties to Anadarko Petroleum (APC) for $2 billion and up to $150 million in contingent payments. The transaction is expected to close before the end of the year. Preferred shareholders in Freeport's oil and gas consolidated subsidiary, Plains Offshore Operations, will receive $582 million; the remaining net proceeds will be used for debt payment.
CEO Richard Adkerson said in a statement that this transaction brings Freeport's total 2016 asset sale transactions to over $6 billion and "reflects our commitment to debt reduction and our focus on dedicating our capital and management resources to our global-leading copper business."
Following news of the deal, Icahn, whose company holds a 7.83% stake in the Freeport, applauded management and the board of directors.
"Yesterday's announcement demonstrates the company is making good on its stated goal of deleveraging and is on track to cut its net debt by half, from year-end 2015 through the end of next year, at current copper prices," said Icahn in a statement.
Freeport has also commenced consent solicitations to amend the indenture governing some of Freeport-McMoRan Oil & Gas' senior notes, totaling $2.3 billion aggregate principal amount.
Prior to this deal, Freeport reported total debt of $19.32 billion at the end of June, so this $2 billion deal will make some headway to reducing FCX's heavy debt load.
Real Money's technical analyst Bruce Kamich also says Freeport's chart "looks set" to add to its gain. Kamich believes the longer-term chart shows the next key resistance area is around $20, something that "sounds promising" to the chartist.
As for Anadarko, it looks like it could be a real winner. With this deal, the company will add about 80,000 net barrels of oil equivalent per day, which is expected to generate an estimated $3 billion of incremental Gulf of Mexico free cash flow over the next five years at current strip prices. (Freeport notes that for the 12-month period ending June 30, 2016, net daily sales volumes from its oil and gas Deepwater Gulf of Mexico properties averaged about 73,000 barrels of oil equivalents.)
To get this deal done, Anadarko has priced a registered underwritten public offering of 35.25 million shares. Total gross proceeds of approximately $1.92 billion will be used to fund the acquisition.
Furthermore, Kamich is "kinda gushing" about Anadarko's chart. Kamich's bottom line is that the technical indicators and the trend of APC "suggest we should see renewed strength with $70 the next upside price objective." But he notes that a close below $50 would turn the trend neutral and would probably delay the rally.