Freeport (FCX) Declares Terms of PT-FI Divestment & New Deal
Freeport-McMoRan Inc. FCX recently announced that it has entered into a non-binding Heads of Agreement with Rio Tinto — PT Freeport Indonesia’s (PT-FI) joint venture (JV) partner — and the Indonesian state-owned enterprise, PT Indonesia Asahan Aluminium (Inalum).
Per the deal, Inalum will acquire all of Rio Tinto's interests related to the JV with PT-FI for cash consideration of $3.85 billion and 100% of Freeport’s interests in PT Indocopper Investama (PT-II), which owns 9.36% of PT-FI.
Post the closure of the deal, Freeport will receive $350 million and Rio Tinto will get $3.5 billion as cash proceeds from Inalum. Additionally, Rio Tinto will forego an equivalent amount in favor of Freeport to its share of the JV cash flows received since Jan 1 through closing. Freeport will continue to manage the operations of PT-FI.
Rio Tinto’s interests to PT-FI will be contributed by Inalum, which will expand the asset base of PT-FI in return of a 40% ownership. Pursuant to arrangements, the move will enable Freeport and existing PT-FI shareholders to preserve the economics of the cost and revenue sharing arrangements under the JV. Inalum will own roughly 51% of PT-FI post completion of the transaction. This is subject to an agreement between shareholders to replicate the economics of the JV.
According to Freeport, the deal is major milestone toward establishing a new partnership with the Republic of Indonesia for long-term stability of PT Freeport Indonesia's operations. Moreover, the deal will enable the government achieve ownership objectives by preserving the long-term value of shareholders and the Indonesian public through 2041.
Notably, the company expects this deal to close during the second half of 2018, subject to the negotiation and documentation of necessary definitive agreements. Such agreements include sale and purchase deals, shareholders’ agreement between Inalum and Freeport for continuing Freeport’s management of PT-FI operations, the stability and extension of PT-FI's long-term mining rights through 2041 in a manner that is acceptable to Inalum and Freeport, and resolution of environmental regulatory matters acceptable to all stakeholders. Moreover, such agreements will be subject to the approval of Freeport’s board.
Freeport’s shares have lost 7.5% over the past three months compared with the industry’s 18% decline.
Zacks Rank & Stocks to Consider
Freeport currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the basic materials space are KMG Chemicals, Inc. KMG, Methanex Corporation MEOH and BHP Billiton Limited BHP, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KMG Chemicals has an expected long-term earnings growth rate of 28.5%. Its shares have returned 44.3% in a year.
Methanex has an expected long-term earnings growth rate of 15%. Its shares have rallied 59% in a year.
BHP Billiton has an expected long-term earnings growth rate of 5.3%. Its shares have gained 24% in a year.
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