Top Copper Miner Freeport Falls on Indonesia’s Environmental Demands

Arizona-based Freeport-McMoRan (NYSE:FCX), the second-largest copper producer in the world, has seen its share price tumble almost 15 percent after reporting ongoing complications surrounding its key Indonesian copper- and gold–mining operations.

As of 2:40 p.m EST on Tuesday (April 24), Freeport’s share price had dipped as low as US$15.76 after opening at US$18.81.

Mining asset ownership changes and more stringent environmental regulations in Indonesia, where the company operates its Grasberg mine, are the main reasons behind the company’s share price fall.

Ongoing negotiations with the Indonesian government regarding divestment on Freeport’s behalf are being complicated by changes in environmental regulations relating to tailings.

Freeport reported on Tuesday that the Indonesian environment ministry wants to make changes around waste disposal requirements that conflict with the current environmental management programs.

“We had an agreement with the government that over the life of the mine, we would retain 50 percent of the tailings on land. They’re now saying it should be 95 percent, which just cannot be done,” Freeport Chief Executive Richard Adkerson told Reuters.

According to the news outlet, he described the ministry’s demands as “shocking” and “disappointing,” but said he is confident that a resolution will be found. He also said that the tailings, which are moved from the mine in a high-lying area by a river system to a cordoned-off area in lowlands, are benign.

According to Freeport’s report for Q1 2018, the resolution of the environmental requests is “a requirement for concluding a comprehensive agreement for PT Freeport Indonesia’s (PT-FI) extended operations.”

The Grasberg mine in Papua Province, which clocks in as the second-largest copper mine in the world, is majority owned by Freeport, but new laws in Indonesia designed to increase state control over mining resources will see Freeport’s 90.64-percent share slashed.

In exchange for securing long-term mining rights through to 2041 at Grasberg, Freeport has to divest a 51-percent stake in the mine to companies owned by the Indonesian government. The government currently owns 9.36 percent of PT-FI, Freeport’s subsidiary in the country and the operator of Grasberg.

Grasberg produced 311 million recoverable pounds of copper in the three months ended March 31, 2018, up from 125 million pounds at the same time last year.

Freeport has reassured investors that it is working to resolve all matters on its plate — environmental and regulatory. The company said it is seeking resolutions for the ownership matter that will see management of Grasberg remain in Freeport’s hands.

Freeport’s report says that the company is continuing to engage with the Indonesian environment ministry to resolve the matter of ownership “in a manner satisfactory to all parties, and in a structure that would provide for continuity of [Freeport’s] management of PT-FI’s operations and governance of the business.”

On Tuesday, Freeport’s share price closed at US$16.08, down 14.47 percent.

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