Recently, JP Morgan downgraded Freeport-McMoRan (FCX) from “overweight” to “neutral.” Among other reasons, it sees issues in Indonesia as a negative for the company. In this part of the series, we’ll see why Indonesian operations are so crucial for Freeport.
The above graph shows a breakdown by country of Freeport’s copper shipments. In 2016, its North American and South American operations accounted for 40.0% and 29.0%, respectively, of its consolidated copper shipments (BHP) (SCCO). Its Indonesian operations accounted for 22.0% of its 2016 copper shipments, and the remaining 9.0% of sales came from its mines in Africa.
However, Freeport’s geographical production mix is expected to change in 2017. Freeport expects to ship 1.5 billion pounds of copper from its North American mines, which would be ~36.0% of its expected consolidated copper shipments. Its Indonesian operations are expected to ship 1.3 billion pounds of copper in 2017, which is more than 32.0% of its expected consolidated copper shipments.
The share of Indonesian operations in Freeport’s consolidated shipments is expected to rise for two reasons. First, Freeport has sold a minority stake in its Morenci mine in North America and a complete stake in its African mines. Second, Freeport’s Grasberg mine (RIO) (TRQ) in Indonesia is nearing the completion of its open-pit mining operations. As a result, the company is now mining high-grade ore with high copper content.
In addition to its issues with the Indonesian government, Freeport is also facing labor issues in Indonesia. In the next part of this series, we’ll see how that’s impacting the company.