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An aerial view of the Cerro Verde copper mine in the Atacama Desert near Arequipa, Peru, is seen in this handout photo released to the media on Tuesday, Nov. 2, 2010. The mine is majority-owned by Freeport-McMoRan of Phoenix.Maik Dobiey/Bloomberg

Freeport-McMoRan Inc. plans to reduce capital spending this year and is seeking funding for its oil and natural gas projects as the metals and energy producer responds to sharp drops in copper and oil prices.

The world's largest publicly traded copper producer expects to spend about $6-billion (U.S.) on mining and oil and gas projects this year, or 20 per cent less than the $7.5-billion it forecast in October, the Phoenix-based company said Tuesday in its fourth-quarter earnings statement. Freeport said it's engaged in talks to obtain funding from "industry partners and other oil and gas market participants."

"Investors would have liked to have seen a more aggressive capex cut, with more of their production growth and spending being deferred until next year and beyond," Garrett Nelson, an analyst at BB&T Capital Markets, said Tuesday by telephone. "A 20-per-cent capex cut just wasn't enough."

With commodity prices tumbling, Freeport has been trying to reduce its debt after buying two energy companies in 2013 for about $9-billion. Both copper and oil reached five-year lows this month amid prospects of an energy glut and concerns about slowing demand from China, the world's top user of metals.

"Freeport is taking aggressive actions to reduce or defer capital expenditures and other costs and has initiated efforts to obtain third-party funding for a significant portion of its oil and gas capital expenditures to maintain financial strength and flexibility in response to recent sharp declines in oil prices," the company said in the statement.

Additional Reductions

Freeport fell 4.6 per cent to $18.66 at 1:05 p.m. in New York. The shares have declined 42 per cent in the past 12 months.

The lack of deeper spending cuts probably foreshadows additional reductions in the future and increases the likelihood of an eventual reduction in Freeport's dividend, Nelson said.

"We're still left wondering how they will de-lever their balance sheet in this price environment without significant asset sales or additional debt or equity issuance," Nelson said.

On a conference call today, Freeport executives declined to give investors specific targets for reducing the company's $19-billion of debt. The company previously aimed to reduce net debt to $12-billion by 2016.

Freeport reported a fourth-quarter loss of $2.85-billion, or $2.75 a share, which compares with a profit of $707-million or 68 cents a year earlier.

Revenue Falls

Excluding a $3.4-billion charge related to a drop in the carrying value of its oil and gas assets and other one-time items, profit was 25 cents a share, trailing the 35-cent average of 21 analysts' estimates compiled by Bloomberg. Sales declined 11 per cent to $5.24-billion, still topping the $4.9-billion average estimate.

In December, Freeport said its capital-spending plans and other costs were under review as oil prices plunged. The company said in October it expected 2015 capital spending of $7.5-billion, including $3.5-billion in its oil and gas unit.

The miner has been expanding copper mines in Peru and Arizona and has been focusing its energy investments on deep-water Gulf of Mexico prospects.

Copper futures in New York have tumbled more than 20 per cent since the end of June, while oil has fallen more than 55 per cent.

Freeport, which operates in the Americas, Africa and Indonesia, said in October that it may miss its goal of reducing net debt to about $12-billion by 2016.

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SymbolName% changeLast
CX-N
Cemex S.A.B. DE C.V. ADR
+1.24%8.96
FCX-N
Freeport-Mcmoran Inc
+2.05%46.82
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United States Steel Corp
-0.17%40.95

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