TORONTO (miningweekly.com) – Managing and reducing debt levels can be a balancing act, but it is high on the priority lists of major diversified miners Freeport McMoRan and Vale, the companies confirmed on Tuesday.
Addressing the Bank of America Merrill Lynch's 2016 Global Metals, Mining and Steel Conference, in Florida, Freeport president and CEO Richard Adkerson advised that the company would aim at getting its debt level down to around $10-billion in the next two to three years, “if the market opens the door for us”.
“We clearly could do this with asset sales. It all boils down to reduce debt, reduce debt, reduce debt. We want to retain value and raise some capital. We’re having a series of discussions about further asset transactions and are open to discussions on all of our assets,” he said, declining to reveal more.
Adkerson mentioned that the company had been selling assets to deal with about $20.8-billion in debt, as at the end of March, and that it had informed the Indonesian government that it was willing to sell 20% of the company’s Indonesian subsidiary.
On Monday the company’s implementation of this strategy was seen in action, when it announced that it would sell its 56% interest in Tenke Fungurume (TF), in the Democratic Republic of Congo (DRC) for $2.65-billion, one of the company's largest deals in years. This deal also provided for a contingent consideration of up to $120-million, if the price of copper rose above a certain threshold.
The company had also entered into exclusive negotiations with buyer China Molybdenum to sell the Freeport cobalt business and Kisanfu exploration project for $150-million.
Adkerson cited logistical issues in the DRC, long-term supply uncertainty and higher risk as being the primary reasons for letting Tenke go. “We didn’t want to do it, it breaks my heart,” he stated, noting that there had been Chinese interest in the project from the outset, making China Molybdenum a natural choice to buy it.
“We were able to get an acceptable valuation. The greater portion of the value at TF was in the future development resources,” he added.
Adkerson noted that Freeport was executing a “clearly defined strategy” and making progress on strengthening the balance sheet. It had also in recent months reshuffled its board and senior management.
“We have made a commitment to reduce debt – we are overleveraged, and that is not the way to be.
“With the market risk and operating risk we face in our business, for us to be successful in the long run we have to reduce this leverage,” Adkerson stressed. He proposed that the company use its significant asset base and resources to lower debt.
“We still have a lot of interest in our copper assets and we will think about what we do with that. The copper is something we would like to retain to build our company around. Tenke was a core asset but different; not fully developed, and with great potential. We got a fair valuation for it – that’s the balancing act,” Adkerson noted.
He also pointed out that the company had tried to sell its oil and gas assets. “You could not imagine a worse time to try to sell these assets, but these are good assets. We have instead restructured it into Freeport and we are continuing to cut costs and preserve capital,” he advised, adding that the company was down to minimal operating capital expenditure at its operations.
BRAZILIAN DEBT REDUCTION
Meanwhile, the world's largest iron-ore producer Vale had also on Tuesday advised that it aimed to reduce debt by about $10-billion through further asset sales over 2016 and 2017. As at the end of the first quarter, Vale had total net debt on its books of no less than $27.67-billion.
“Divestments and strategic transactions will help balance the cash flow and strengthen our balance sheet,” the company advised in a new presentation posted on its website.
Forecast sales of noncore assets were revised downward by between $4-billion and $5-billion for 2016, down from $4-billion to $5.5-billion expected previously, after it had failed to sell an interest in bauxite producer Mineração Rio do Norte.
Vale advised that it expected the global nickel market to be in a 50 000 t deficit this year; however, it also noted that above-ground stocks remained high.
The company said it saw the cost of producing a tonne of iron-ore delivered to China falling to $23.60/t in 2018, down from $28/t in the first quarter, which itself was a 32% drop year-on-year from $41.10/t in the first quarter of 2015.