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Why Freeport Might Want to Resolve the Grasberg Issue

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Grasberg impasse

In April, Freeport-McMoRan (FCX) managed to secure a six-month concentrate export permit in Indonesia. While the permit helped address the short-term challenge from the export ban, the larger question about Freeport’s future in Indonesia still hasn’t been resolved.

The Grasberg mine is among the most sought-after copper assets. It’s the world’s second-largest copper mine after BHP Billiton’s (BHP) Escondida mine. Freeport wants the Indonesian government to extend its mining permit beyond 2021. However, under Indonesian laws, the contract can’t be extended before 2019—two years before the current contract expires.

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Underground operations

Freeport and Rio Tinto (RIO), its partner in Grasberg, are spending a significant amount of money to convert the Grasberg mine into an underground operation. Despite the ongoing impasse with the Indonesian government, Freeport hasn’t completely suspended its investments in Indonesia (EIDO).

According to Freeport’s CEO James Adkerson, “a highly skilled group of workers that are involved in this block-cave development. And if we demobilize that group, then we would be faced with a period of time to remobilize them and get them back to work.” He also added, that “to bring them back together would be a period of time measured in months rather than weeks.”

Catch-22 situation

Grasberg operations have put Freeport in a catch-22 situation. It can’t completely suspend its investments at Grasberg despite not having assurance about the stability of its investments. The company’s management might want to resolve the Grasberg issue soon to clear the air. An amicable resolution could boost Freeport stock, which has sagged this year despite higher copper prices (SCCO).

You can also visit Market Realist’s Copper page for ongoing updates on the copper industry.

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