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Will Freeport-McMoRan See More Downgrades due to Grasberg?


Feb. 28 2017, Updated 7:39 a.m. ET

Analyst ratings

According to consensus estimates compiled by Thomson Reuters, Freeport-McMoRan (FCX) has a mean one-year price target of $14.80, representing an 11.7% upside over its closing price on February 24, 2017. In contrast, Freeport carried a one-year price target of $13.85 on January 24, one day before its earnings release. While some analysts raised Freeport’s price target after the company’s 4Q16 earnings, we’ve seen some downgrades since the Grasberg issues (RIO).

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On February 21, Deutsche Bank downgraded Freeport from “hold” to “sell” while cutting its one-year price target from $14 to $12.5. Earlier this month, JP Morgan also downgraded Freeport from “overweight” to “neutral.” Among other reasons, it sees issues in Indonesia as a negative for the company.

Of the 23 analysts surveyed by Thomson Reuters, only four have recommended Freeport-McMoRan stock as a “buy” or equivalent, while five have recommended a “sell” or equivalent on the stock. A total of 61% of analysts have recommended “holds” on the stock.

Grasberg issues

Earlier this year, Freeport’s Indonesian export permit expired, and the company hasn’t been able to export copper concentrates (XME) (BHP) since January 12, 2017. To make things worse, the company has started curtailing production at the mine and seems to be headed for arbitration with the Indonesian government. Issues facing Freeport’s Indonesia operations are the biggest concern for Freeport investors.

If Freeport isn’t able to reach an early agreement with the Indonesian government, the stock could see some more downgrades given the importance of the Grasberg mine in Freeport’s portfolio. You can read Freeport-McMoRan’s Indonesia Issues: Everything You Need to Know to find out more about the issues facing Freeport’s Indonesia operations.

In the next article, we’ll see how analysts are rating Southern Copper (SCCO).


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