Industry Trend Analysis - Freeport Sale To Support Growing Chinese Presence In DRC - FEB 2017


BMI View: The sale of Freeport's stake in the Tenke Fungurume copper mine in DRC will improve the company ' s finan cial standing and provide a significant boost to China's goal of securin g further assets in the country' s mining sector . In part due to strong Chinese investment, the DRC's copper out put will experience the second fastest growth rate of all major global copper producers from 2017-2021, despite persist ent operational challenges.

The sale of Tenke Fungurume copper mine in the Democratic Republic of Congo (DRC) by Freeport-McMoran and Lunding Mini ng is to be completed after State-owned Gecamines announced in January 2016 that it would drop its opposition to the transaction. Freeport signed a deal to sell its 56% holding in the project to state-backed China Molybdenum in May 2016, although Gecamines, which owns 20% of the mine, originally opposed the deal and opened an arbitration case.

The sale of Freeport's stake amounts to USD2.65bn and represents a core part of the company's ongoing efforts to reduce a bloated debt load that peaked at USD20.0bn in January 2015. In line with this strategy, the company has completed asset sales worth 6.06bn in 2016, including divestments of oil and gas operations and its Morenci copper mine in Arizona. Freeport, the largest publicly listed copper miner, posted improved financial results in its Q416 report, reducing its debt to USD11.8bn in 2016, almost a 50% decline y-o-y. This positive trend is reflected in the 255% rise in company share price since the beginning of 2016, even though gold and copper production targets for 2017 have been revised downwards.

DRC Output Growth Outperforms As Copper Rises
Selected Countries (2017-2021) - Average Copper Production Growth (%, LHC) and Global Copper Prices (USD/t, RHC)
e/f: BMI estimate/forecast. Source: BMI, USGS

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