December 5, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of McMoRan Exploration (NYSE: MMR ) and Plains Exploration & Production (NYSE: PXP ) skyrocketed 81% and 26%, respectively, today after mining giant Freeport-McMoRan (NYSE: FCX ) said it will buy the pair of energy companies for a combined $9 billion.
So what: Freeport is making the move to diversify beyond the increasingly difficult global mining business -- from a demand and political standpoint -- into the domestic oil and gas space, giving it plenty of easier growth opportunities going forward. Unfortunately, Freeport will also have to assume $11 billion of debt in the deal, prompting nervous investors to send its own stock down 13% this morning.
Now what: The combined entity is expected to generate about three-quarters of its 2013 operating from mining, with the rest from oil and gas. "This transaction will enable us to add assets with exceptional exploration and development potential to a world-class mining company to create a premier minerals and oil and gas business focused on value cr/eation for shareholders," said Freeport Chairman James Moffett. So while McMoRan and Plains shares might have limited upside at this point, Freeport's bolstered growth opportunities might drive some outsized gains going forward.
More Expert Advice from The Motley Fool
After putting together a blockbuster deal to expand into the oil and natural gas industry
, Freeport-McMoRan will have plenty on its plate as it tries to adapt to the new industry, as expanding into oil and gas carries plenty of inherent volatility. FCX had a profitable copper business, and on top of this foray into a new industry it still has to contend with mining industry bellwether BHP Billiton. To help investors determine if Freeport-McMoRan is a buy or a sell, we've compiled a brand new premium report on the company! Click here now
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