INDUSTRIAL MINERALS — Freeport Sulphur merger going ahead

In a weak market for both sulphur and hydrocarbons, Freeport Sulphur (FSC-N) has fashioned a merger with its oil-producer cousin, McMoRan Oil and Gas.

The historic sulphur company, the original developer of the Ertsberg copper deposit in Indonesia, vanishes into the new company, which is expected to carry the name McMoRan Exploration.

Under the merger plan, Freeport Sulphur shareholders will receive five shares of the new company for every eight Freeport Sulphur they exchange. McMoRan Oil and Gas shareholders will receive one new share for five old. McMoRan shareholders will own about 58.5% of the equity in the new company.

Freeport’s market capitalization is about US$98.4 million, and its book value is close to US$106 million. McMoRan Oil, which trades on the Nasdaq market under the symbol MOXY, has a market capitalization of around US$147 million.

The plan still requires the approval of shareholders of both companies. Oct. 2 was the record date to determine shareholders’ eligibility to vote on the merger, but no meeting date has been announced.

In June, Freeport announced it would shut down its Culberson County operation in southeastern Texas, blaiming low market prices for sulphur. Freeport’s Main Pass mine, also in Texas, will remain in production.

The closure meant a writedown of US$9.5 million against assets and US$600,000 for closure costs, offset by a writedown of US$4.1 million in pension provisions carried on the books as liabilities. The net effect on second-quarter earnings was a charge of US$3.9 million, which left Freeport Sulphur with a loss of US$2.3 million on US$56.7 million in revenue. For the first half of 1998, the company shows a US$148,000 profit (US1 cents per share) on revenue of US$113.6 million.

Four of the world’s major base metal deposits — Grasberg and Ertsberg, in Indonesia, and Nanisivik and Kidd Creek in Canada — owe their development to the search for sulphur. Ertsberg, discovered by a Dutch survey party in the 1930s, was acquired by Freeport in the 1960s as a potential sulphur producer. Freeport, converted to a metal producer as a result of this new project, discovered Grasberg a few years later. Nanisivik and Kidd Creek were both discovered by Texas Gulf Sulphur crews searching for large sulphide deposits in Canada.