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FCX Investor Notes: Could Grasberg Make Headlines in 2017?

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Updated

Grasberg mine

Freeport-McMoRan (FCX) owns the Grasberg copper and gold mine in Indonesia (EIDO). Rio Tinto (RIO) is Freeport’s partner in this mine. RIO also owns the Oyo Tolgoi mine in Mongolia through its subsidiary Turquoise Hill Resources (TRQ).

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In the news

Freeport-McMoRan’s (FCX) Indonesia issues have been in the headlines over the last couple of years, mostly for the wrong reasons. The current issues mostly boil down to the stake sale in Indonesia operations, smelter construction, and the extension of the mining contract after 2021.

Furthermore, Freeport must get an export permit extension as the current permit allows FCX to export concentrate only until January 11, 2017.

Positive news flows

In late 2016, there was some positive news flow concerning Freeport-McMoRan’s (FCX) Indonesia operations. According to a Reuters report on December 22, 2016, “Indonesia is considering allowing miners to negotiate an extension of their operating permits five years before expiry.”

Freeport-McMoRan and Rio Tinto, FCX’s partner in the Grasberg mine, are spending ~$1 billion per year to convert the mine to underground operations (BHP). It’s only natural that a company would want to be certain about the future of a project before investing heavily in the project.

Furthermore, Freeport-McMoRan would derive the benefits from these investments only in the longer term. Freeport would want to end this uncertainty over the contract extension so that it can be comfortable with its investments at the Grasberg mine.

An early amicable solution to Indonesia issues would be positive for Freeport-McMoRan and could also support its valuation. In the next article, we’ll see how markets are valuing Freeport-McMoRan heading into 2017.

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