In a move that will give it a sorely needed funds, the Fluor Corp. said Tuesday that it has agreed to sell its 90% interest in St. Joe Gold Corp. and other gold properties to an Australian mining company for $500 million in cash.
The buyer, a subsidiary of Dallhold Investments Pty. Ltd., was described as the second-largest gold producer in Australia. It has made a $50-million deposit on the deal, which is expected to close by Oct. 31. Dallhold is a holding company owned by the family interests of Australian industrialist Alan Bond.
Earlier this summer, Irvine-based Fluor said it wanted to sell its gold assets as part of a corporate-wide effort to refocus on expansion of its core engineering and construction business. Shearson Lehman Brothers Inc. and S.G. Warburg Co. Inc. were the investment bankers retained by Fluor to coordinate the sale.
The $500-million price is near the top of the range that analysts anticipated Fluor could get for its interest in St. Joe Gold, which is based in Clayton, Mo. The cash will help Fluor sharply reduce its $400-million debt--much of which it acquired when it bought St. Joe Minerals in 1981 for $2.2 billion.
"We will have our debt under control so that debt is no longer the driving force of what we do," said Fluor Chairman David S. Tappan Jr., noting that last year the company was burdened with about $50 million in interest payments.
Tappan said his goal is to reduce the debt sufficiently so that the company will have "net interest expense of zero." He said any interest that Fluor pays on remaining debt will be offset by the company's interest earnings on investments.
Not ruling out the possibility of making acquisitions with some of the money from the sale, Tappan said that Fluor "has the happy new problem of what to do with our cash."
Because of the improvement in Fluor's finances, Tappan said he expected that the company's credit rating will be restored to investment grade "before a few more months pass." Earlier this year, both Moody's Investment Service and Standard & Poor's Corp. lowered their ratings of the company's long-term debt.
Tappan said the St. Joe Gold sale was an important part of Fluor's strategy, outlined 18 months ago, to significantly reduce its investment in the minerals business.
In retrospect, Fluor and Wall Street analysts have referred to Fluor's 1981 entry into mineral mining and production as a colossal error. Combined with a drastic slowdown in oil-related construction projects, a slump in the minerals business has contributed to staggering corporate losses of $780 million in the 2 1/2 years ended April 30. Results for the third quarter ended July 31 have not been reported.
St. Joe Gold is a publicly traded subsidiary that Fluor spun off from St. Joe Minerals last year by selling 10%, or 3 million shares, of the gold operation's stock to public investors.
Tappan said a recent resurgence in gold prices has made St. Joe Gold a prime sales candidate. The price received by St. Joe for its gold production has increased from an average of $343 an ounce in the second quarter of fiscal 1986 to $416 an ounce during the same period in 1987. The spot price of gold has risen above $460 in recent weeks.
According to Fluor, St. Joe Gold's earnings dropped to $2.6 million in the six months ended April 30 from $5.2 million a year, earlier despite the increase in gold prices. The company attributed the decline to reduced gold production from existing mines. However, a Fluor spokesman said Dallhold intends to step up production by tapping new areas believed to have significant potential.
St. Joe stock, which was originally offered at $13 a share in January, 1986, closed Tuesday at $16.75. During the last six months, it has risen as high as $20 a share.
Flour still retains 100% ownership of a coal company, A.T. Massey, following the recent dissolution of a joint venture with Shell Oil Co. Tappan said one of the purposes of the restructuring was to give Fluor the option of selling the coal company in the future. However, he added that the company has no immediate plans to sell.
Also, late last year Fluor formed a joint-venture lead mining company with Homestake Mining Co. The venture, of which Fluor owns 57.5%, is called Doe Run Co.
A Fluor spokesman described the St. Joe Gold sale as "the most important and last of the major restructuring actions in natural resources."
Tappan said Fluor is also negotiating the sale of St. Joe Resources, a zinc company in Clayton, Mo., and various lead and silver mining properties in Argentina and Brazil.