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: Suffice it to say, March isn't a month that long-term Freeport-McMoRan Inc (NYSE:FCX) investors will want to remember. Not a whole lot went right as the company's major Grasberg mine in Indonesia was shut down for several days after workers blockaded an access road as part of a labor dispute. To make matters worse the global benchmark oil price dropped 11% on the month and the company slashed its dividend by 84%. That's why it's probably not a surprise to see that the stock dropped more than 10% last month.
So what: The news that will have the greatest long-term impact on Freeport's stock is the dividend cut. The dramatic 84% cut will leave income investors with much less cash flow each quarter. However, the cut will save Freeport-McMoRan $1.1 billion per year, which was cash it needed as weak oil and copper prices have really cut into its operating cash flows. In fact, the company is projected to spend $2 billion more than its cash flow this year on capex, despite the fact it is spending $1.2 billion less in 2015 than it spent last year. This short fall is worrisome as the company's debt level is already a bit too high. This is why the company has been seeking outside capital to help fund its $2.3 billion oil and gas capex. That cash infusion, along with the billion saved on dividend payments, will help Freeport's debt from growing any worse.
Now what: Freeport-McMoRan borrowed a lot of money to acquire two oil and gas companies in 2013. That move was intended to help diversify the company's business away from its reliance on copper and allow it to take advantage of robust oil prices. That plan hasn't worked as oil prices turned south last year leaving Freeport with some tough decisions to make. The toughest is the deep cut to its dividend, however, if commodity prices rebound in the future Freeport should be able to boost the payout again.