After Indonesia Impasse, Lower Copper Prices Hit Freeport

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Indonesia impasse

Freeport-McMoRan’s (FCX) 2017 price action has largely disappointed the markets. The stock fell 2.5% last week, taking its year-to-date (or YTD) losses to 12.7%.

Among other copper miners, Glencore (GLNCY) and Southern Copper (SCCO) are still trading with YTD gains, despite the recent sell-off in the metals and mining space (XLB) (RIO).

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Underperformance

Freeport’s underperformance can be largely attributed to the impasse at its Indonesia operations. The company was barred from exporting copper concentrates from its Grasberg mine in Indonesia for more than three months.

The ban hurt Freeport’s production and shipment profile at a time when copper was trading at higher price levels. The company also missed its 1Q17 earnings estimates largely due to lower production at its Grasberg mine.

Lower copper prices

While Freeport has received a short-term reprieve in the form of an export license, lower copper prices have hit its fortunes. As we learned in the previous article, copper has lost its 2017 gains amid concerns about Chinese demand. Chinese copper imports were lower than expected in April 2017, which negatively impacted copper market sentiments. Prior to that, China’s April manufacturing PMI (purchasing managers’ index) missed estimates, raising a red flag regarding China’s economic activity.

Meanwhile, over the last two years, Freeport has managed to bring down its debt levels, which should better equip the company to cope with lower commodity prices. 

Though Freeport’s balance sheet looks to be in a much better position now compared to the past year, the key question could be this: Have these asset sales really added value? We’ll discuss this question in the next article.

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