Fluor May Be Gearing Up to Sell Off Its Gold-Mining Subsidiary Operation
Fluor Corp. disclosed Monday that it has hired a team of investment bankers to determine the value of its St. Joe Gold Corp. gold-mining operations, a move interpreted by analysts as a first step toward a potential sale of all or part of the subsidiary.
Fluor, which is pursuing a restructuring program to reduce its involvement in natural resources, confirmed that it has retained Shearson Lehman Brothers Inc. and S.G. Warburg & Co. Inc. to assess the value of its 90% stake in St. Joe Gold “in light of improved world gold market conditions.”
Based on Monday’s closing price of $15.125 per share, Fluor’s 27 million shares of St. Joe Gold have a market value of $408 million. The company is a unit of Fluor’s St. Joe Minerals subsidiary and was created in early 1986 specifically to enable Fluor to raise cash from its assets by selling 10% of the company in public offering.
Now, Fluor could be gearing up to sell most or all of its majority interest.
“I think their intent is to sell it; it’s that simple,” said analyst Mark Altman with PaineWebber in New York. “They are at the point where they are ready, if the price is right, to sell or divest all of their natural resources assets. That would include gold, then coal, lead and zinc.”
Fluor spokesman Rick Maslin declined to discuss the potential outcome of the evaluation, which is expected to be complete within the next 10 weeks.
“We want to look at all of our options for the gold operations,” Maslin said. “Those options range from holding on to everything to selling everything.”
St. Joe Gold mines precious metals in the United States, Chile and Canada. The unit produced 293,000 ounces of gold during the fiscal year ended Oct. 31, 1986. Its operations include the Yuba Placer gold-dredging operation north of Sacramento.
Although it generated only $107 million of Fluor’s $4.7 billion in revenues for fiscal 1986, St. Joe Gold yielded net income of nearly $8 million. Fluor reported a consolidated net loss of $60 million for fiscal 1986.
Irvine-based Fluor acquired its St. Joe Minerals subsidiary in 1981 in what is now viewed as an ill-timed diversification at the height of an inflationary cycle in natural resources.
“Historically, we have been an engineering and construction company,” Maslin said. “Since we purchased St. Joe, the economic environment has changed dramatically. The two businesses haven’t maintained the kind of synergy that led us to bring them together initially.”
In January, 1986, Fluor consolidated St. Joe’s gold operations into St. Joe Gold and sold 3 million shares of the new unit in a public offering for $13 per share. The proceeds of $39 million were used to fund the unit’s capital needs. Since the public offering, the price of gold has appreciated from about $340 an ounce to more than $440.
