Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
In May Freeport-McMoRan Copper & Gold (NYSE:FCX) announced the sale of its Tenke Fungurume copper mine in the Democratic Republic of the Congo to China Molybdenum (CMOC) for up to $2.65 billion, a crucial part of the Phoenix-based company’s debt reduction program.
But exiting the DRC is proving to be as complicated as operating a mine in the troubled central African country. Now Gecamines, the state-owned mining company, is taking Freeport and Canada’s Lundin Mining (TSX:LUN) — which through a Bermuda-based company indirectly owns 24% of Tenke — to international courts.
State-owned miner Gecamines wants both companies to restructure terms of their exit from Tenke, one of Congo’s biggest mines.
The move, Agence Ecofin reports (in French), aims to force both companies to restructure the terms of their exit from Tenke, known as TFM, one of the country’s biggest mines. According to the news agency, Gecamines is demanding, among other things, that any amendments to the indirect ownership of TFM be blocked unless authorized by the state miner.
On top of that issue, Freeport has been negotiating with partner Lundin, which is entitled by a “right of first offer” to supplant any bids for the copper mine by matching them, so it can finally proceed with the agreed sale of it stake in Tenke to China Molybdenum.
Originally, the Toronto-based miner had until mid-September to decide whether to allow Freeport-McMoRan to go ahead with the deal, but it has since been granted extensions. On Wednesday, Lundin announced it had further extended, for the fourth time, the period in which it has the right to effectively acquire Freeport’s 56% interest in Tenke. The new deadline is now November 15, 2016.
If Lundin manages to secure the same terms as the Freeport-CMOC agreement its stake could be worth in the region of $1.2 billion, but the extensions suggest a new deal could be negotiated that could see Lundin become a major shareholder (and perhaps operator) together with Gecamines and CMOC.
Tenke, which cost $3 billion to build, holds one of the world’s largest known copper resources. The high-grade mine that last year produced 203,965 tonnes of the red metal and just over 16,000 tonnes of cobalt.
As most of its peers, Freeport — which is the top publicly-held copper producer — has been struggling to get its debt load under control, which ballooned to $20 billion following the ill-timed acquisition of oil and gas assets three years ago. In February the company sold a 13% stake in its US Morenci mine, the world’s fifth largest, for $1 billion to Japan’s Sumitomo, but so far has not been able to offload the energy operations despite putting them on the block a year ago.
