Freeport Hopes to Reach Copper Mine Deal with Indonesia in 2017

CEO Richard Adkerson said he was encouraged by progress in talks on a new permit for Grasberg.

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Shares of Freeport McMoRan (NYSE:FCX) declined more than 3 percent on Wednesday (October 25), as investors focused on an ongoing dispute with the Indonesian government over Grasberg.

Despite this, CEO Richard Adkerson said he was encouraged by progress in talks on a new permit for the world’s second largest copper mine.

“Both the government and Freeport are highly motivated to resolve this, to eliminate the uncertainty,” he said on a conference call with analysts to discuss third-quarter results.

“There are complex issues involved in the negotiations and not all of those have been resolved but I am convinced that we have a mutual objective to reaching a resolution,” he added, saying that both parties are working on a final deal by the end of the year.

In August, the company committed to selling a 51-percent stake in its Indonesian subsidiary, PT Freeport Indonesia, and investing up to $20 billion by 2031 to further develop the mine.

On Wednesday, Freeport said its stake in the Indonesian operation would drop first to 49 percent and then to 29 percent under the divestment and joint venture plan.

“While our interest in the participation in Grasberg would be reduced, we would be receiving cash from that interest, which would reduce our exposure to Indonesia,” Adkerson said. “There’s positive and negatives to that.”

Grasberg accounted for 18 percent of the company’s revenue last year and most of its gold production.

“Negotiations in Indonesia matter more than anything else for now,” said Jefferies and Co analyst Christopher LaFemina in a note to clients. “While we are encouraged by Freeport’s operational performance, progress (or lack thereof) in the company’s ongoing negotiations with the government of Indonesia is clearly critical to the FCX investment case.”

Copper prices have been surging since January, supported by investors’ optimism over global growth, a weaker dollar and positive Chinese demand outlook.

Last week, prices broke the $7,000-per-tonne mark and even the most bearish voices in the space are turning bullish on copper, including investment bank Goldman Sachs (NYSE:GS).

“What’s been a feature of the recent copper market has been positive demand globally. Around the world manufacturing sectors are performing well. Chinese growth is exceeding expectations,” Adkerson said.

Earlier in the day, the company reported better-than-expected quarterly results, including sales of 932 million pounds of copper and 355,000 ounces of gold. Furthermore, Freeport maintained its 2017 sales forecast of 3.7 billion pounds of copper and 1.6 million ounces of gold, after twice lowering it earlier this year.

On Wednesday, shares of Freeport closed down 3.48 percent in New York at $14.70. LME copper closed up 0.1 percent in London at $7,010 per tonne.

Don’t forget to follow @INN_Resource for real-time news updates! 

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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