Firm Buys Fluor’s Mining Operation for $100 Million

Cash-hungry Fluor Corp. said Friday it has sold its domestic zinc mining, processing and marketing operation and related properties to a large New York-based manufacturing firm for about $100 million.

The buyer, Horsehead Industries Inc., through a division called New Jersey Zinc Co., paid $62 million in cash for the zinc business and has assumed the operation’s $38 million debt, Fluor said.

Just last month, Fluor announced an agreement to sell its 90% share of St. Joe Gold Corp., as well as its other other gold properties, to an Australian mining company for $500 million cash.

And Fluor said Friday that it also plans soon to sell its international metals business, consisting primarily of a lead, zinc and silver mine in northern Argentina.

Since 1983, Fluor has sold oil, natural gas and mineral resources and related companies worth more than $1.2 billion.

The mineral operations sales are an important part of Fluor’s reorganizational strategy to refocus on its traditional business of construction and engineering.

The latest sales, as well as the anticipated sale of its international metals operation, are expected to give Irvine-based Fluor, which is struggling to reverse nearly three years of losses, a one-time net gain in its fourth fiscal quarter.

Fluor will also get a tremendous infusion of cash, with which it intends to sharply reduce its current $300 million in long-term corporate debt.

Some industry analysts also believe that Fluor will use the fourth quarter gain to help offset the more than $25 million it loses each year from lease payments on 800,000 square feet of unoccupied office space at an office building in Sugar Land, Tex., a suburb of Houston.

Fluor officials said they are considering several alternatives to resolve the financial drain from the company’s Texas real estate.

In a prepared statement about the sale of the zinc business, David S. Tappan Jr., Fluor’s chairman and chief executive officer, said Friday that the operation “does not fit our long-term strategic direction. As previously announced, we intend to concentrate on engineering, construction and technical services through our Fluor Daniel organization and limit our interests in natural resources to coal and lead.”

Fluor’s purchase of St. Joe Minerals in 1981 for $2.2 billion has been decried by Wall Street analysts as a colossal error. The company was bought at a premium price just as the minerals business hit its apex and plunged into a tailspin. At about the same time, Fluor’s mainstay business of designing and building large refineries, petrochemical plants and other energy projects collapsed. “The company was in excellent financial shape before it bought St. Joe, and afterward it was an absolute disaster,” said Robert W. McCoy Jr., an analyst with Kidder Peabody & Co. “Dave Tappan is working his way out of the problem and doing a very good job of it.”

Sales of the gold and zinc operations leaves Fluor with just two vestiges of its St. Joe Minerals acquisition: A.T. Massey, a coal company that Fluor owns entirely, and a 57.5% interest in a lead mining company called Doe Run Co.

“We still have significant holdings in coal and lead, and we intend to hold onto those,” Fluor spokesman Rick Maslin said Friday.

However, some analysts predicted that Fluor is keeping the coal business primarily because it is now profitable and will add to earnings and cash flow until Fluor’s engineering and construction businesses, which have returned to profitability this year, are more solidly in the black.

McCoy said he believes Fluor is confident that it can further strengthen both its coal and lead businesses with the aim of getting a better price for them.

Mark Altman, a vice president with Paine Webber Inc. in New York, agreed that Fluor’s days in the minerals business are numbered. “I think in the next couple of years, odds are better than even that they divest their remaining natural resources operations,” he said.

Analysts who follow Fluor expect that after the company completes the divestiture of its minerals operations, it will use some of its cash to buy back the 30 million shares it issued in the purchase of St. Joe Minerals--a move that some analysts said will ultimately increase the per-share value of Fluor’s stock.

Fluor officials acknowledged Friday that such a stock buyback is part of Fluor’s restructuring plan but said they don’t yet know when it will occur.