Freeport-McMoRan Inc (NYSE:FCX) has been facing issues dealing with the two oil and gas companies it acquired in 2013. The oil prices were up during that time and it might have seemed like a good decision, but since the decline last year the mistake is starting to show. The company has already warned shareholders that there is more to come, if the prices stay low. The announcement came after the company had announced to issue its quarterly dividend of $0.05 per share to be given on May 1.
Freeport was already a major shareholder in McMoRan Exploration Co. and Plains Exploration, when it decided to buy the two companies. The acquisition cost $9 billion, but Freeport also needed to take $11 billion in debt during these transactions. The total amount paid for the acquisition is as much as the company’s current market capital of $20 billion. Until the first half of 2014, the management was able to defend its decisions with the benefits of being in the oil business. Unfortunately, after that everything turned upside down. During the second half of 2014, the company wrote of $5.4 billion from the $20 billion deal, due to oil prices falling by nearly 50%.
In its FY 2014, the company had warned that if oil prices stay at their current levels, Freeport-McMoRan Inc (NYSE:FCX) will have to write off a lot more from its goodwill. A spike in oil prices, however, can instantly make the company’s assets more valuable again. This would add back to the goodwill of FCX and would once again make it highly profitable. Unfortunately, for that to happen, the oil prices need to reach at least $90 a barrel, as per company estimates. Currently, the company has estimated oil prices to stay between $60 and $80 for the next five years.
Freeport-McMoRan Inc (NYSE:FCX) closed at $20.66 gaining 2.13% on April 22. The company has 1.04 billion shares being traded in the market. Additionally, the 52-week range for FCX is $16.43-$39.32.
