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In response to the global commodities crunch, Freeport-McMoRan (NYSE:FCX) needed to take action to address its weakening cash flow and worrisome debt load. Most of the actions it has taken thus far have really been to bridge the growing gap between cash flow and outflows, with the company making a number of cuts to both capex and operational expenses as well as selling equity to raise cash. Now, the company has finally made an initial step toward debt reduction by agreeing to sell a partial stake in one of its mines for $1 billion. It's a small step forward, but forward progress none the less.

Details on the deal
In last quarter's earnings report, Freeport-McMoRan noted that it was "actively engaged in discussions with third parties regarding potential transactions." Now, we're seeing the first tangible outcome of those discussions after the company reached an agreement to sell a 13% ownership interest in its Morenci copper mine in Arizona to Sumitomo Metal Mining for $1 billion. The deal expands their existing partnership because Sumitomo and one of its affiliates already own 15% of the mine, with Freeport having owned the other 85%. However, once this deal closes, Freeport-McMoRan's interest in the mine will drop to 72%.

Freeport-McMoRan expects the deal will close by mid-year and the cash will be used to repay borrowings under its bank term loan and revolving credit facility. While the company expects to record a $550 million gain on the sale, it will be able to offset any cash taxes on that gain from previous losses. In other words, the full $1 billion can be used for debt repayment.

What's next for Freeport-McMoRan
While a billion dollars is a lot of money, it's really just a drop in the bucket for Freeport-McMoRan. That's why CEO Richard Adkerson described the move as an "important initial step toward our objective to accelerate debt reduction and restore our balance sheet." It really is just a baby step given that the company's total debt stood at $20.4 billion at the end of last quarter, with the term loan alone totaling $3 billion. So, this transaction isn't exactly needle-moving when the numbers are that big, which is why it's just one of many transactions the company is pursuing.

Currently, the only other transaction to be reported is the company's offer to sell a 10.64% interest in its crown jewel Grasberg mine in Indonesia for $1.7 billion to that country's government. Reports surfaced about the offer earlier last month, with the government having 60 days to respond with potential buyers for that stake. In a lot of ways, it's a similar transaction, with Freeport-McMoRan working to sell a larger stake directly to its current partner instead of bringing in another partner.

In addition to that, Freeport-McMoRan continues to evaluate options for its oil and gas business, though the company has been exploring alternatives for this business for more than a year. It started off by seeking a financial funding partner to pay for capex in exchange for a working interest in those growth projects, but that has expanded to potentially selling a stake in the entire business via an IPO, or even an outright sale. So far, the company has come up empty in its attempts to raise capital for the business, but it continues to look at "all alternatives," according to Adkerson.

Deciding what alternative route to take is really the most critical decision facing the company right now. That business not only saddled the company down with its current mountain of debt, but crashing oil prices have incinerated the value of the business. Freeport needs to stop this bleeding by finding a way to maximize whatever value is left in that business, which is going to be hard to do with oil in the low $30s.

Investor takeaway
Freeport-McMoRan took an important first step toward debt reduction by agreeing to sell a partial stake in the Morenci mine. However, much work is left to be done given how much debt the company still needs to address. Further, after more than a year exploring alternatives and watching oil prices continue to slide, Freeport really needs to find a palpable alternative for its oil and gas business in order to get that weight off of its shoulders so it can begin to move forward once again.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. 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.