Citi Downgrades Freeport McMoRan, Planned Asset Sales Likely To Erode NAV

Citi’s Brian Yu downgraded the rating for Freeport-McMoRan Inc FCX from Neutral to Sell, while maintaining a price target of $4.50.

Against the backdrop of an expected downtrend in commodity prices and various debt maturities, the company has placed all of its assets under review for potential divestiture, analyst Brian Yu said. Freeport McMoRan is targeting proceeds of $5-$10bn from the planned divestitures.

“We take a deeper look at each of the company’s major operations and provide a range of value expectations based on earnings multiples on the low-end and longer-term NAV value on the high-end…Our mine-by-mine analysis shows that FCX’s various assets could be worth close to $10/sh based on a longer-term view of copper and oil markets,” Yu wrote.

The analyst added, however, that while the company would need to make these divestitures to preserve liquidity and fund significant debt maturing in 2018, the planned sales of mining assets towards the trough of the commodity cycle could erode NAV value.

While Freeport McMoRan’s shares have been rising, Citi’s commodity price deck does not allow for any increase in the price target.