When the global recession sent the price of copper and molybdenum into a tailspin that would quickly translate into cutting revenue in half for Freeport-McMoRan Copper & Gold, the company went into action. It implemented a broad-based plan that included lowering operating costs by 18% by idling facilities, reducing its U.S. workforce by one-third, and suspending its common stock dividend. The goal was to take the pain upfront, hang onto much of its $1.2 billion in cash, and protect the company's prospects in the recovery.
The company also converted many of its $1.1 billion, 5.5% preferred shares into common to reduce dividend payouts, and used funds from certain trust accounts where there was excess cash that the company could reclaim.
On top of that, the company issued new stock, but used an innovative "equity drawdown program" to dribble the stock out over 10 days and avoid taking the hit to its stock price that a new issue typically brings. In fact, the average $28 price for the new shares was 22% higher than the stock price at the time of the offering filing, reports Kathleen Quirk, EVP, CFO and treasurer. These steps together allowed the company to keep its investment-grade ratings with S&P and Fitch and to set the stage for a 229% gain in stock price in 2009, making it the seventh best performing stock in the S&P 500, she notes.
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