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LONDON, UK / ACCESSWIRE / August 31, 2017 / Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for Freeport-McMoRan Inc. (NYSE: FCX) (“FCX”), following which we have published a free report that can be viewed by signing up at http://protraderdaily.com/optin/?symbol=FCX. The Company announced on August 29, 2017, that it has reached an agreement with the Indonesian Government (“Government”) and shared the details of the Framework for Agreement (FoA) on the long-term operating rights of PT Freeport Indonesia (“PT-FI”). PT-FI is the Indonesian affiliate of Freeport-McMoRan, engaged in the mining of copper, gold and silver in the Grasberg mine located in the Mimika Papua Province in Indonesia. For immediate access to our complimentary reports, including today’s coverage, register for free now at:
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The FoA between Freeport-McMoRan’s PT-FI and Government was discussed and finalized at a meeting held on August 27, 2017, at the office of the Ministry of Energy and Mineral Resources (ESDM) in Jakarta. The Government was represented by Government Negotiation Team lead by Chairman, Ignatius Jonan, Minister of Energy and Mineral Resources and Sri Mulyani Indrawati, Finance Minister and other government agency representatives as well as Richard Adkerson President and CEO of Freeport-McMoRan and members of PT-FI’s Board. The negotiations which have been dragging for many years finally inched towards an amicable solution.
Commenting on the FoA with the Government regarding PT-FI, Richard C. Adkerson, said:
“We are pleased to announce an agreed framework to support our ongoing operations and investment program in Papua. Reaching this understanding on the structure of a mutual agreement is significant and positive for all stakeholders. Important work remains on documenting this agreement and we are committed to completing the documentation as soon as possible during 2017.”
Ignasius Jonan added:
“The outcome of this negotiation is in accordance with the instructions of President Joko Widodo to prioritize the national interest, the interests of the people of Papua, the sovereignty of the state in the management of natural resources, and keep the investment climate remain conducive.”
Key Points of FoA
The negotiations between FCX and the Government would ensure long-term support for PT-FI’s plans in Papua.
At present PT-FI conducts its mining operations in Indonesia under a Contract of Work (COW) with the Government of Indonesia. The COW is valid till 2021. As per the negotiations, PT-FI will be given a special license (IUPK) in lieu of the COW, wherein its operating rights will be extended up to 2041. The Government has given FCX the option to immediately apply for a 10-year permit to continue operations at Grasberg beyond 2021 with the option of a second extension of another 10 years to be proposed before the expiry of first extension in 2031. The IUPK will be governed by certain fiscal and legal terms provided by the Government for the duration of its tenure.
PT-FI has agreed to build a new smelter in Indonesia within next five years. The Government is pushing for the new smelter as it would lead to employment opportunities for the local populace.
The most important and defining point agreed by FCX was that it would reduce its stake in PT-FI to 49% so that Indonesian entity(s) would own the controlling and majority stake of 51% in PT-FI. This follows Indonesia’s new local ownership rules introduced in January 2017. However, the Company has clarified that the divestment would be structured in such a way that FCX will continue to have operational control and governance of PT-FI. FCX is looking to realize a “fair market value” for its divestment, however, the Government could be looking at a lower valuation.
The terms of the FoA will be final only when it is supported by proper documentation and is subject to receiving approvals from Board and partners of Freeport-McMoRan. Rio Tinto PLC (NYSE: RIO) is Freeport-McMoRan’s partner in PT-FI and has invested in the Indonesian operations since mid-1990s.
History
FCX has been negotiating with the Government to renew PT-FI’s operating permits for Grasberg Mine which expires in 2021. In 2016, the Government came out with a legislation and a new licensing agreement wherein all foreign mining Companies were required to divest 51% controlling stake in Indonesian mines to local Companies. FCX tried to circumvent the Government’s decision. As a result, in January 2017, the Government withdrew Freeport-McMoRan’s export permits for copper. This impacted operations at Grasberg Mine and resulted in the partial shutting of operations and major layoffs, which led to labor unrest in the region. In April 2017, after negotiations, FCX and the Government reached a temporary understanding and the Company was allowed to export its unrefined copper.
Impact of the FoA
The FoA is a temporary solution but is a step in the right direction. FCX may seem to have received the short-end of the stick, but it may not be so in the long-run. Grasberg mine is an important asset for both FCX and the Government. It is the world’s second-most productive gold mine and second-most productive copper mine. Grasberg’s copper reserves have been estimated at 790,000 metric tons and its gold reserves total about 25.8 million ounces of gold. The mining operations from Indonesia contributed approximately 18% to the Company’s revenues in FY16. Given that the price of copper in the international market has been rising in the last two years, Freeport-McMoRan’s decision would be beneficial to the Company in the long-term.
For the Government, the new permit would result in revenue via taxes and royalties. The normalization of the Grasberg mining operations will also help in stabilizing the mining activities and help in settling the labor unrest caused due to the layoffs.
About Freeport-McMoRan Inc.
Phoenix, Arizona based FCX is a leading international mining Company and the world’s largest publicly traded copper producer, the world’s largest producer of molybdenum, and a significant gold producer. FCX’s portfolio of assets includes the Grasberg Mine in Indonesia, mining operations in Morenci minerals district in North America and the Cerro Verde operation in South America.
Last Close Stock Review
At the closing bell, on Wednesday, August 30, 2017, Freeport-McMoRan’s stock slipped 4.27%, ending the trading session at $14.56. A total volume of 23.62 million shares have exchanged hands, which was higher than the 3-month average volume of 19.31 million shares. The Company’s stock price soared 27.16% in the last three months, 9.39% in the past six months, and 37.88% in the previous twelve months. Moreover, the stock surged 10.39% since the start of the year. The stock is trading at a PE ratio of 20.34 and currently, has a market cap of $21.35 billion.
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