Why Freeport Investors Will Likely Postpone the Celebration



Freeport’s Indonesia issues

On August 29, 2017, Freeport-McMoRan (FCX), the world’s largest publicly traded copper miner (GLNCY) (SCCO), announced that “FCX and the government of Indonesia have reached an understanding on a framework to support PT-FI’s long-term investment plans in Papua.”

The move comes after Freeport CEO (chief executive officer) Richard Adkerson expressed optimism about a resolution by October in the company’s 2Q17 earnings call.

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Key terms

Under the terms of the framework, Freeport has agreed to construct a smelter in Indonesia within five years. The company would also have to divest 51% stake to “Indonesia interests.” Notably, these were the two key demands from the Indonesian government (EIDO).

In return, Freeport would convert its existing CoW (contract of work) to a special license referred to as IUPK. This license would provide Freeport operating rights through 2041.

According to Freeport “the government will provide certainty of fiscal and legal terms during the term of the IUPK.”

Previously, Freeport had refused to convert its CoW to an IUPK. During its 4Q16 call, Freeport insisted on an “investment stability agreement” with the Indonesian government before it converts its COW to an IUPK. Adkerson said during the company’s 4Q16 call that “Under a license, you’re subject to prevailing laws and regulations.”

Series overview

Meanwhile, despite Freeport’s announcement of a resolution to its long-pending Grasberg dispute (RIO), its stock fell on August 29.

In this series, we’ll assess what likely made markets apprehensive about Freeport’s announcement.

We’ll begin (below) by looking at the timeline for Freeport’s Indonesia issues.


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