According to a recent 13D filed with the Securities and Exchange Commission, Carl Icahn’s Icahn Capital has initiated a large activist stake in Freeport-McMoRan Inc (NYSE:FCX) through its affiliated funds. The new holding contains 88 million shares, representing about 8.46% of the company’s outstanding stock. However, the investor only holds 7.60 million shares, while the rest of the position is held in form of shares underlying forward contracts.
Icahn is a renowned activist investor famed for his involvement in companies that usually brings significant changes such as shaking up the management, but, most importantly, creates shareholder value in the process. Aside from Freeport, regarding which Icahn also said it intends to discuss with management and request board representation, the activist’s latest target has been Cheniere Energy Inc. (NYSE:LNG), in which it disclosed a stake amassing 19.35 million shares and recently has obtained two board seats.
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Icahn’s move in Freeport-McMoRan Inc (NYSE:FCX) comes as the company has recently announced plans to further cut its spending and expenditure, which was well met by investors, sparking a 30% intraday rally of the stock. The capital expenditure for mining and energy was slashed by 29% to $4 billion from the prior estimate that the company provided just a month earlier. Moreover, the sales outlook was reduced by 150 million lbs. per year for both 2016 and 2017. Also, the company announced a 20% reduction in estimated 2016 unit site production and delivery costs as compared to the estimated levels of 2015. While these measures might not go a long way in improving Freeport-McMoRan Inc (NYSE:FCX)’s income statement, they will surely improve the balance sheet and the statement of cash flow thereby ensuring investors that it can operate in a challenging environment. Prior to these cuts, Freeport-McMoRan Inc (NYSE:FCX) was operating in a highly unsustainable manner considering the copper market, as its capital expenditures for the first half of the year were near twice the operating cash flow. Moreover, according to Jeffries analyst Christopher LaFemina, Freeport-McMoRan Inc (NYSE:FCX)’s stock is worth at least $14 per share based on sum-of-the parts valuation. He further pointed out in a note that if the current measures prove insufficient, the company still has the option to sell assets like Cerro Verde, El Abra and Morenci mines.
Aside from the positive news that have been surrounding Freeport lately, the company also saw a significant increase in popularity as of late. Among over 700 hedge funds that we track, 41 held long positions in the company with an aggregate value of $581.83 million at the end of the June quarter as compared to 31 firms holding $258.10 million worth of stock at the end of the previous quarter. Among these funds, Stanley Druckenmiller‘s Duquesne Capital is the largest shareholder of Freeport-McMoRan Inc (NYSE:FCX), as it initiated a position with 3.55 million shares during the second quarter. It is followed by Mario Gabelli‘s GAMCO Investors, which hiked its holding in the company by 13% during the second quarter to 2.73 million shares valued at $50.87 million.
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