Mining Company to Create Oil and Gas Conglomerate

Brian Hicks

Written By Brian Hicks

Posted December 7, 2012

Phoenix-based mining company Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) will buy two oil and gas producers in a $9 billion deal.

The company will buy Plains Exploration & Production Co. (NYSE: PXP) for $6.9 billion (cash and stock), and it will pay $2.1 billion for McMoRan Exploration Co. (NYSE: MMR), also assuming $11 billion in debt.

Plains Exploration, based out of Texas, produces oil and gas across California, Texas, Louisiana, and the Gulf of Mexico. And McMoRan Exploration, based in New Orleans, develops natural gas offshore underneath the Gulf of Mexico waters.

The arrangement would create a conglomerate spanning oil rigs in the Gulf of Mexico all the way to copper mines in Indonesia, the Washington Post reports.

As mining companies begin to face rising development costs, geopolitical instability, and environmental problems, this deal gives Freeport-McMoRan the opportunity for diversification while also stabilizing revenue streams dependent on commodity prices (mostly copper and gold).

Natural gas prices, of course, remain attractively low due to the production glut thanks to fracking. Meanwhile domestic oil production is at its highest level since the late ’90s, although oil prices worldwide remain high.

The deal, however, may be off-putting to shareholders disinterested in owning oil and gas assets.

From the Washington Post:

Evy Hambro, joint chief investment officer of BlackRock’s natural resources equity team, criticized the deal during a conference call with Freeport-McMoRan executives.

“I haven’t heard anything on this call that in any way justifies why these companies should be put together,” Hambro said.

Shareholders of Plains and McMoRan will need to approve the deal before it goes through.

Shares for Freeport-McMoRan dropped 16 percent to $32.16 after the announcement on Wednesday, while Plains Exploration saw shares rise 23 percent to $44.50. McMoRan rose 87 percent to $15.82.


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