Freeport-McMoRan (FCX) has agreed to sell its Tenke copper mine in the Democratic Republic of Congo (DRC) for a reported $2.65 billion. The buyer is a Chinese company, China Molybdenum Co. Ltd (CMOC), adding yet another valuable mining asset to the company's—and the country's—portfolio.
Series of Acquisitions
CMOC—commonly just called "China Moly" for short—has in fact struck two such megadeals in as many weeks. It previously purchased the phosphates and niobium operations of Anglo American Plc (AAL) in Brazil for $1.5 billion. The two acquisitions are part of China Moly's well-telegraphed $4-billion spending spree that the company announced earlier this year. Indeed, the two deals add up to right around $4 billion, and even more could be in store. FCX and CMOC have entered into exclusive negotiations for the former's cobalt operations in Finland, which may total an additional $100 million.
In an effort to slash its eleven-figure debt load, Freeport has resorted to selling off some of its more valuable operations and holdings. This is certainly the case with Tenke, a massive open-pit project which has been called a "prized" asset. Last year, total Tenke mine production topped 467 million pounds (215,000 metric tonnes) of copper.
Freeport-McMoRan, based in Phoenix, Arizona, is the largest U.S. mining company in terms of market capitalization, with a market cap north of $12 billion. In response to the sale, however, shares of FCX actually slumped worse than 24% in a week's time. Shares recovered 3.8% on Tuesday afternoon.
Rebound for Copper?
Copper prices are still trading near 7-year lows, but this deal could be a bright spot for the copper market: According to Reuters, "Even though copper is languishing near its lowest price in seven years due to a supply glut, the recent corporate activity is a sign that some investors are willing to the call the bottom on the commodities cycle." Last year the copper price fell by 27% as industrial demand (in China, especially) began to slow down.
The aggressive moves seem to indicate that the markets are beginning to bet that copper is prepared to bounce back along with commodities in general. Chinese firms have been reaping bargain deals from the situation. So far this year, China's overall outbound M&A deals are already nearing $100 billion after a record-setting $104 billion worth of such deals last year.
This was the biggest sale of a copper mine since Glencore (GLEN) sold its Las Bambas copper mine in Peru to the Chinese-financed firm, MMG Ltd, in 2014. The Las Bambas project—which sold for $6 billion and is currently valued at $10 billion—is expected to push Peru ahead of Chile as the world's second-biggest copper producer.
According to the Wall Street Journal, "Other Chinese companies have targeted gold mines. Last year, China’s Zijin Mining Group agreed to buy a 50% stake in the unit that manages Barrick Gold Corp.’s Porgera gold mine in Papua New Guinea."
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