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The 3 Worst Freeport-McMoRan Inc. Headlines in 2015

By Matthew DiLallo – Dec 15, 2015 at 12:25PM

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Investors likely cringed after reading these headlines about the mining company this year.

With its stock price down roughly 70% year to date, it's pretty obvious that Freeport-McMoRan (FCX -1.26%) made a few bad headlines over the course of the year. Here's a look back at Freeport-McMoRan's three worst headlines this year.

1. "What an 84% Dividend Cut Is REALLY Telling Investors"
Back in March, Freeport-McMoRan put out a simple press release titled "Freeport-McMoRan Declares Quarterly Cash Dividend on Common Stock." It's the same headline it had put out quarter after quarter. But, this time the contents of that press release were different. The company wasn't simply declaring the same dividend rate it had been paying since 2012. Instead, it would be paying a new rate that was 84% lower than what investors were accustomed to receiving.

While the company would note in that release that the reduction was a prudent measure to strengthen its balance sheet, others saw a deeper storyline here. 24/7 Wall Street captured this with its headline, "What an 84% Dividend Cut Is REALLY Telling Investors," which suggested that times were tougher than investors realized. Furthermore, it implied that the only reason the company didn't suspend its payout entirely wasn't because it believed the new rate to be sustainable, but because it wanted to give income investors a reason to continue holding the stock.

2. "Freeport-McMoRan weighs up selling minority stake in oil unit"
About a month later the Financial Times reported that Freeport-McMoRan was considering the sale of a minority stake in its oil and gas subsidiary, possibly via an IPO. This was after the company hinted at such a move in its first-quarter earnings report, which was released that same day.

In considering this option, Freeport-McMoRan was joining other miners such as Vale (VALE -1.93%), which were planning to unlock value via an IPO or spin-off of assets. In Vale's case it was said to be seeking an IPO of its base metals business, which wasn't a core part of the iron ore producer's portfolio.

What made the oil and gas subsidiary IPO headline so bad for investors was the fact that the company just bought the business in mid-2013. The implication being that the company's management poorly timed its purchase at what now appears to be the top end of the oil cycle and that the company now is looking to unload it closer to what might be the bottom end of the low cycle. All that being said, it has yet to move forward with this proposed transaction because like Vale's base metal's IPO, Freeport-McMoRan has put its subsidiary IPO plans on hold due to further weakening of market conditions.

3. "Freeport-McMoRan to Suspend Dividend, Further Cut Spending"
Instead of raising cash via an IPO to help it manage through the down cycle, the company was left with no other choice but to further reduce its expenses. This move was best captured in the above Wall Street Journal headline.

For investors, this headline really showed just how tough things were getting for the company. It had reached the point where it needed to stop all unnecessary cash outflows, including the $240 million in annualized dividend payments intended to appease income investors. Furthermore, the company needed to make yet another capex reduction, this time reducing it by another $1 billion, which would lead to a reduction in future copper production as well as tame the growth in its oil and gas business. The hope is that these moves would put the company on a stronger financial footing.

Investor takeaway
The headlines for Freeport-McMoRan seemed to go from bad to worse in 2015. Some of that was beyond the company's control, with the price of all of the commodities it produces weakening over the course of the year, which affected its cash flow. However, due to some poor decisions in prior years, Freeport-McMoRan wasn't in the best financial position when conditions weakened this year, which forced it to continue to react to conditions, leading to some of the worst headlines an investor would want to read.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale Ads and Freeport-McMoRan Copper & Gold,. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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