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Freeport (FCX) Divests a Portion of Cobalt Business for $200M

Zacks Equity Research

Freeport-McMoRan Inc FCX recently completed the earlier announced divestment of a portion of its cobalt refinery in Kokkola, Finland along with associated cobalt cathode precursor business to Umicore. Total cash consideration for the transaction amounted to roughly $200 million, which includes working capital of $50 million. 

Per the deal, Freeport separated its cobalt business while Umicore purchased the refinery and cathode precursor business, which contributed around 60% to the refinery’s revenues on a historical basis. Freeport and its partners will continue to retain the remaining cobalt business of Freeport Cobalt with operations in Kokkola as well as sales offices in the United States, Europe and Asia. Notably, this retained cobalt business is a leading manufacturer of cobalt fine powders, catalyst, ceramics, chemicals and pigments globally.

Freeport is expected to realize a gain of around $60 million from the transaction, while Lundin Mining Corporation is entitled to receive 30% of the proceeds of the deal.

Freeport’s shares have gained 3.7% in the past year compared with the industry’s 12.8% rise.

Freeport anticipates consolidated sales volumes for 2019 to be around 3.3 billion pounds of copper, 874,000 ounces of gold and 92 million pounds of molybdenum. This projection also includes 870 million pounds of copper, 200,000 ounces of gold and 24 million pounds of molybdenum for fourth-quarter 2019.

For 2019, the company expects operating cash flows of nearly $1.6 billion. Capital expenditures are expected to be around $2.6 billion, which includes $1.6 billion for major mining projects that are mainly related to underground development in Grasberg, Indonesia and development of the Lone Star copper leach project.

Zacks Rank & Key Picks

Freeport currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd KL, Impala Platinum Holdings Ltd IMPUY and Polymetal International plc AUCOY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland Lake Gold has an expected earnings growth rate of 97.1% for the current year. The company’s shares have surged 75.6% in the past year.

Impala Platinum Holdings has projected earnings growth rate of 255.2% for 2019. The company’s shares have skyrocketed 263% in a year.

Polymetal International has an estimated earnings growth rate of 40.5% for the current year. Its shares have returned 60.4% in the past year.

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