The executive chairman and co-founder of Freeport-McMoRan, James “Jim Bob” R. Moffett, will step down this Thursday. He will resign from the Board of Directors on the same day. Gerald J. Ford, the company’s lead independent director, has been appointed non-executive chairman and Richard C. Adkerson will continue as president and CEO.
“Jim Bob has become an icon as an explorationist,” during his more than 50-year career in the industry, Ford said.
A 50-Year Career
Moffett has served as Freeport McMoRan’s executive chairman since 2003, and previously was CEO from 1995 to 2003.
Moffett was born in 1938 in Houma, Louisiana. His father, an oilfield worker, left the family when Jim Bob was 5, his parents divorced, and he and his sister moved to Houston with their mother, where he took up odd jobs to support the family.
Read our biography of Jim Bob Moffett, “Tenacity Embodied”
He attended the University of Texas at Austin on a football scholarship, where he graduated in 1961 with an award for excellence in geology. He then went on to earn a master’s in geology from Tulane. After receiving his graduate degree, he worked in the oil and gas business as a consulting geologist in New Orleans before founding McMoRan Oil & Gas in 1969 with partners William Kennon McWilliams Jr. and B.M. “Mack” Rankin.
McMoRan soon earned a reputation for aggressively pursuing oil and gas reserves. The company formed drilling partnerships with several companies, including Freeport Minerals. In 1981, Jim Bob engineered a combination of the two companies that became Freeport-McMoRan. It was one of the largest corporate mergers in Wall Street history.
In late-1988, Freeport-McMoRan gained its then-most prized asset, Indonesia’s Grasberg open-pit mine, which to this day is the largest gold and copper find on earth by reserves. Jim Bob described the mine as “a volcano that’s been decapitated by nature, and we’re mining the esophagus, if you will.” McMoRan eventually funneled the profits earned through the Indonesian mine to steer his once modest mining venture towards a $26 billion takeover of Phelps Dodge Corp in 2007- a deal that would go down as one of the largest mining mergers in history.
Indonesia’s Grasberg open-pit mine; Source: themalaysianinsider.com
Although Jim Bob got Phelps Dodge at a good price, according to many analysts, McMoRan incurred significant debt as a result of the transaction. But soaring copper and gold prices shortly after the merger enabled Jim Bob to pay off this debt, and McMoRan’s stock price doubled in only seven months. As of late-2012, Grasberg had produced more than 42 million ounces of gold and 26 billion pounds of copper.
But Jim Bob and controversy are anything but distant cousins. In fact, in some areas he is just as famous for the “mine that didn’t work out.” In 1997, Bre-X, a small Canadian mining company, shocked the world when it announced its discovery of a 50-million ounce Indonesian gold field with characteristics similar to Grasberg.
McMoRan was eventually Bre-X’s choice of a partner to develop the mine and Jim Bob himself flew to Indonesia to seal the deal and, more importantly, to oversee independent tests of the mine. The results showed no commercially recoverable gold in the field. Jim Bob phoned Toronto, where Bre-X officials were being lauded for their discovery at a mining convention, and ordered them to return to Indonesia to explain. Michael de Guzman, Bre-X’s lead geologist, jumped to his apparent death from a helicopter over the jungle as he was heading for his meeting with Moffett.
In an interview with Fortune magazine about the Guzman suicide, Jim Bob said, “Man, it makes me sick every time I think about it. I’d had it with these guys. The thing that forced this thing out in the open was de Guzman jumping out of the goddamn helicopter.”
Recent Woes Plague Freeport-McMoRan
Shares in Freeport-McMoRan are down by more than two-thirds in 2015. In Monday midday trading, they dropped 8%.
In August, the company revealed plans to reduce Capex 29% for 2016, curb production and cut around 10% of its workforce amid declining copper prices. In October, the company posted a $3.8 billion 3Q loss following a large writedown on its O&G division.
Soon after that announcement, activist investor Carl Icahn revealed that he purchased a 8.5% stake in the company and that he might seek representation on the board. Icahn advocated cost reductions and ultimately reached a deal with the company that placed his affiliates on the board of directors.
Moffett is the second energy executive to leave his position in December with Icahn on the company board. Earlier this month, Charif Souki, CEO of natural-gas exporter Cheniere Energy, was ousted.
Another challenge for the company has been unwinding the 2012, $9 billion deal that merged Freeport’s mining operations with McMoRan Exploration Co. The latter had invested almost $1 billion drilling the Davy Jones well. This was one of the most expensive wells of all time. Located in the shallow water GOM, the well targeted an enormous natural gas layer located over 29,000 feet below the sea floor.
Another 2012 acquisition- the $6.9 billion takeover of Plains Exploration and Production Co., further expanded Freeport-McMoRan’s US O&G footprint – and added even more debt.
Cumulatively, the combined companies’ long-term debt more than quintupled. As of September 30, Freeport-McMoRan had almost $20 billion in debt. The Wall Street Journal reports, citing S&P Capital IQ, that this represents more than three times its operating income for the last year.
The company is among the world’s largest producers of gold and copper. Both of these commodities have lost significant value this year. For instance, copper has fallen more than 26% amid indications of a slowdown in China.
Moffett will receive $16.1 million in severance pay. He was also named “Chairman Emeritus” on Monday, and will continue to provide consulting services to the board for an annual compensation of $1.5 million.