A deep-pocketed mining conglomerate has just anted up $9 billion to make a high-stakes wager on energy.
Freeport McMoRan (NYSE: FCX) is best known for its massive metals hoard, most notably the Grasberg complex in Indonesia, which is the largest gold mine and third biggest copper mine on the planet. With operations on four continents, the company holds 102 billion pounds of copper reserves, 40 million ounces of gold, 266 million ounces of silver, 2.5 billion pounds of molybdenum, and 700 million pounds of cobalt.
On Dec. 5, Freeport McMoRan extended a bold $9 billion buyout offer ($20 billion including the assumption of debt) for two mid-tier exploration and production (E&P) firms.
The first target is McMoRan Exploration (NYSE: MMR), which, as you might guess, once belonged to Freeport McMoRan. MMR gained its independence via spin-off in the mid-1990s. After amassing 255 billion cubic feet of proved oil and gas reserves, MMR is now reuniting with its former parent.
The second prize in this mega-deal involves Plains Exploration (NYSE: PXP), which incidentally owns a sizeable stake in MMR. Plains itself is still digesting a $6 billion acquisition of offshore properties belonging to BP (NYSE: BP) and Shell (NYSE: RDS) that are currently generating 67,000 barrels of oil per day
After the deal closes in the second quarter of 2013, the Freeport McMoRan natural resource empire will dramatically expand its reach.
Opportunity in the Gulf
The common thread that binds these dual transactions is offshore production in the Gulf of Mexico. Freeport is paying $2.1 billion for McMoRan Exploration (net of what it already owns) to gain control of what could potentially be one of the largest discoveries on the Gulf of Mexico shelf in decades.