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Freeport-McMoRan (FCS) Downgraded To 'Hold' By Deutsche Bank, PT Cut

 December 06, 2012 01:24 PM

(By Balachander) Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) shares were downgraded to "hold" from "buy" by Deutsche Bank (DB) after the company agreed to acquire Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR) in a deal valued at roughly $20 billion.

The bank called FCX's move as "surprising and unpopular".

The deal (no FCX shareholder approval required) marks a significant dilution vs stated copper-growth strategy by adding risky exploration-driven US offshore oil & gas (O&G) resources and significant leverage, DB said.

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"We are not supportive of this deal, as we believe FCX shareholders would rather maintain exposure to copper (or at least mining), receive higher dividends and there are few synergies and greater complexity," the bank wrote in a note.

"Deal appears to be 10 percent 2013E EPS dilutive to FCX shareholders, leading us to cut our PT to $40 (from $50) after further lowering PE target multiple to 8x (9x) given change in strategy and leverage," DB added.

PXP's major assets include its oil production facilities in California, a growing production profile in the onshore Eagle Ford (Texas), production facilities and growth potential in the Deepwater Gulf of Mexico (GOM) and large onshore resources in the Haynesville natural gas trend in Louisiana.

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MMR is engaged in exploration, development and production of oil & natural gas, located offshore in the GOM shallow waters and onshore in South Louisiana.

FCX shares which have been trading in the 52-week range of $30.58 to $48.96, shed 4.04 percent to trade at $30.86 on Thursday.

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