There is no question that Freeport-McMoRan (FCX), the Arizona-based natural resources company, is having problems, but will it go the way of Anglo American?
On Tuesday, Anglo American announced that it was embarking on a "radical restructuring" program to "create a more resilient business to deliver sustainable shareholder returns."
Indeed, the plan is radical. The London-based mining company will be cutting 85,000 jobs, or 63% of its workforce. Anglo American will also suspend its dividend payments through 2016 and consolidate into three businesses from six. Shares of the company responded on Tuesday by trading down 12% on the London Stock Exchange. The stock is down 73% for the year.
The moves, while drastic, are not much unlike measures other mining companies have taken in order to weather the storm that has hit all commodities, from oil and natural gas to copper and iron.
As for Freeport, the company's stock is down 70% for the year. Like Anglo American, Freeport maintains a diverse basket of mineral resources. It has one of the world's largest deposits of copper and gold. However, unlike Anglo American, Freeport also has a portfolio of oil and natural gas assets.
While investing common sense often touts the benefits of diversification, at current commodity prices, one could not imagine a worse basket of losers.
Freeport has taken measures to clean up its balance sheet amid low prices and bad news. The company has reduced its dividend and raised $1.2 billion in equity during the third-quarter out of an announced plan to raise $2 billion. Even so, CEO Richard Adkerson admitted during the third-quarter earnings call the company made that decision "reluctantly."
"None of us like raising equity in this kind of marketplace, but we concluded it was prudent as a further step to protect our liquidity and our balance sheet now," Adkerson said. "We found this to be an efficient way to raise capital without having to go to market and face the pressures that come about from a marketed deal and the pricing implications of that."
The company also announced in October it was "undertaking a review of strategic alternatives for its oil and gas business." Some of the measures Freeport is considering include a spinoff of the business, joint venture arrangements and spending reductions. Some of the options being considered are less favorable in the current market, Adkerson said.
"We have an overriding goal of being able to manage that business under these alternatives in a way that funds itself with its cash flows or outside financing," Adkerson added.
As for liquidity concerns, the company has $1.25 billion in notes coming due in 2017. The yield on the 2.15% note due in March 2017 has spiked to 12.3% from 5.9% last Tuesday. Meanwhile, the yield on the 2.3% note due in November 2017 has similarly spiked to 13.2% from 7.95% over the same period. However, unlike many others in the space, at 1.68, Freeport has a current ratio that is within the usually recommended 1.5 to 2.0 target.
While Freeport is no doubt mirroring some of the measures taken by Anglo American, it appears insulated from "radical restructuring" -- at least so far.