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Freeport-McMoRan’s Take on the Energy Business: 3Q15 Call

Mark O'Hara

A Closer Look at Freeport-McMoRan’s 3Q15 Earnings

(Continued from Prior Part)

3Q15 conference call

Previously in this series, we’ve discussed the key takeaways from Freeport-McMoRan’s 3Q15 financial results. Now, we’ll look at the company management’s thoughts on the energy business. Freeport-McMoRan (FCX) is looking at “strategic alternatives” for its energy business. It has highlighted two objectives for its energy (DBE) business

  1. Achieve self-funding for the energy business.
  2. Look for strategic alternatives that enhance shareholder value.

Alternatives

According to Freeport-McMoRan, the company is currently evaluating several alternatives.

  • IPO (initial public offering) of minority interest: Freeport-McMoRan filed for an IPO of its energy business in June. However, the equation seems to have changed a bit after Carl Icahn took a stake in the company.
  • Spin-off: Spinning off the energy business into a new entity is another alternative. Earlier this year, BHP Billiton (BHP) spun off its non-core assets into a new company, South32 (SOUHY). Alcoa (AA) has also announced that it will split into two companies next year.
  • Joint venture and third-party funding arrangements: This would entail getting a strategic partner for the energy business.
  • Further spending reductions: Freeport-McMoRan has already cut its capital expenditure in the energy business. The company might look at further spending cuts to make its business cash flow positive.

During the 3Q15 earnings conference call, James Flores, CEO of the energy business, said, “There’s no sacred path or no prohibited path at this point.” He also added that creating value for Freeport-McMoRan shareholders would be the “number one goal” while deciding on the strategic alternatives for the energy business.

Another key takeaway from the earnings conference call was the company’s Indonesia operations. We’ll discuss this in detail in the next part of our series.

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