Joining Anglo American and Kinder Morgan (KMI), Freeport-McMoRan (FCX) announced the full suspension of its dividend. The clustered nature of these announcements only create questions about what might have changed recently, a possibility which actually holds very little mystery. After all, the company’s stock price has been falling steadily since about December 2010 (trading at about $60) so that surely isn’t the catalyst. Having been on a more gentle downward slope to June 2014 (trading at around $37), the stock has plummeted with commodities (timed to the “dollar”) to less than $7 recently (though it is up in trading this morning by about 10%).
It is not stock price considerations that have struck Freeport in recent days, nor can it be strictly commodity prices. Both of these have been known facts and predictable drags (except to economists and policymakers) for at least seventeen months, if not four years. Increasingly, we are forced to reckon, as Freeport, Anglo American and Kinder Morgan (and countless other unknown, private entities and partnerships already) with a full inflection and paradigm shift in finance.
The company also said it was looking at other financing alternatives, including a potential sale of minority interests in certain mining assets.
Freeport cut 2016 capital expenditure budget for its oil and gas operations by 10 percent to $1.8 billion, and slashed its 2017 budget by 40 percent to $1.2 billion.
These are the moves of a business under threat of debt rollover problems; activelymanaging, for the first time, a potential liquidity bottleneck in combination of a continuing horrible business environment that is no longer being overlooked by a formerly mania-crazed “reach for yield” that not long ago funded almost anything and everything on Janet Yellen’s (Ben Bernanke’s) word alone. As noted yesterday, the “exploration” for asset sales to alleviate the balance sheet devastation that has taken place is going to get more and more crowded – when the debt runs out, the credit cycle turned, the words “bankruptcy” and “liquidation” begin to enter the pertinent lexicon, forcing more drastic, painful attempts. Better to get through the exit, any exit, first.
Leave A Comment