How Much Could Freeport-McMoRan’s Sale of Its Morenci Stake Impact Indonesia?



Morenci stake sale

As we’ve discussed previously in this series, Freeport-McMoRan’s (FCX) Morenci stake sale changed the way markets look at copper assets in general and at Freeport in particular. This is the first asset sales transaction initiated by Freeport after the company announced its plan to raise between $5 billion and $10 billion during its 4Q15 earnings conference call. Selling stake in Indonesia (EIDO) operations is another alternative that Freeport could look at this year. The graph below shows the different routes through which Freeport plans to raise cash.

How Much Could Freeport-McMoRan's Sale of Its Morenci Stake Impact Indonesia?

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Agreement terms

According to Freeport-McMoRan’s agreement with Indonesia’s government, it needs to divest a 20.6% stake in the Grasberg mine to the government or its citizens. In its 4Q15 earnings conference call, Freeport-McMoRan noted it has submitted the valuation of its Indonesia operations to the government. The company has valued the Indonesia operations at ~$16 billion.

If Freeport manages to get an IPO (initial public offering) of its Indonesia operations at valuation levels near what its management guided in the 4Q15 earnings call, it could go a long way in restoring investor confidence.

Other buyers

Note that Rio Tinto (RIO), which is also developing the Oyu Tolgoi mine (TRQ) in Mongolia, is Freeport’s partner in the Grasberg mine. Earlier, RIO had indicated that it could look at copper assets. BHP Billiton’s (BHP) CEO Andrew Mackenzie has also indicated that the company might look at copper assets. However, the key for Freeport will be to raise cash without hampering its long-term earnings ability in a big way.

Meanwhile, along with the asset sales, rising commodity prices (DBC) also changed the game for Freeport. Continue to the next part for a closer look.


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