Prior to Freeport-McMo-Ran Copper & Gold Inc.’s acquisition of Phelps Dodge this spring, industry analysts questioned whether FMI was biting off more than it could chew because of the large debt it assumed to make the $26-billion purchase.

FMI officials said at the time they did not see a problem in paying off the debt and paying it sooner than projected. So far, FMI’s word is as good as gold and as solid as the current copper market. Copper prices that have remained stable around $42 a pound have certainly been a factor.

FMI Chairman of the Board James R. Moffet and CEO Richard C. Adkerson said, “With the anticipated repayment of our term debt by year end, we will have reduced debt by more than $10 billion since our March 2007 acquisition of Phelps Dodge, achieving our debt reduction objectives two to three years sooner than initially targeted.” The $26-billion deal created the world’s largest mining merger. It also ended speculation that the smaller Freeport did not have the financial moxie to swing the deal to acquire Phelps Dodge, the world’s third-largest and America’s leading copper producer.

Freeport-McMoRan now operates and owns most of the former open-pit copper mine in Morenci, which was considered Phelps Dodge’s flagship mine. FMI is also developing a copper mine near Safford, 50 miles from Morenci. The Safford operation could be in full swing by mid-2008.

Local impact

When Freeport-McMo-Ran acquired Phelps Dodge, it absorbed about 15,000 employees worldwide. That included about 5,500 people in Arizona, of which 2,500 work at the Morenci mine. The company has an estimated $2.6-billion impact on Arizona’s economy. It also has operations in Globe-Miami.

The Morenci mine has greatly increased production over the past year and FMI is hiring about 600 new employees for its Morenci and Safford operations. Construction is under way at both facilities, which has resulted in the additional influx of hundreds of workers employed by contractors.

At least two of the three school districts in Greenlee County have seen significant increases in student enrollment. Hundreds of new homes are being built for FMI workers at Copper Verde Park in Clifton and in Morenci.

Housing growth and student enrollment increases are also being seen in Graham County.

Looking good

Moffett and Adkerson said of the debt reduction, “This has enabled us to take a first step of increasing cash returns to shareholders through a 40-percent increase in our common dividend.” The FMI board’s authorization of a new share purchase program will enable it to purchase shares from time to time in future periods as FMI generates cash flows in excess of its capital expenditures and other cash requirements.

“Our financial policy will be reviewed on an ongoing basis and will be designed to maintain a strong balance sheet, enable financial flexibility to invest in organic growth and provide strong cash returns to shareholders subject to market conditions,” Moffett and Adkerson said.

Dividends up

FMI’s board of directors also has authorized an increase in its annual common stock dividend from $1.25 per share to $1.75 per share. The dividend will be payable quarterly ($0.4375 per share) beginning with the February 2008 dividend payment.

Freeport-McMoRan, which trades under FCX on the New York Stock Exchange, also announced its board approved a new open market share purchase program authorizing purchases totaling 20 million shares. The timing of future purchases is dependent upon many factors including the company’s operating results, cash flow and financial position, the market price of the common shares and general economic and market conditions.

FCX has approximately 382 million shares of common stock outstanding and approximately 444 million assuming conversion of FCX’s convertible securities.

China factor

The copper market owes a great deal of its stability to China, which at present is the world’s biggest copper customer. Its housing and building boom and overall economic growth have been at the center of increased demand for copper.