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Did Optimism over the Grasberg Resolution Help Freeport?

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Grasberg

Freeport-McMoRan (FCX) operates the giant Grasberg mine in Indonesia (EIDO). The mine, where Rio Tinto (RIO) (TRQ) is Freeport’s minority partner, is the second-largest mine globally after BHP Billiton’s (BHP) Escondida mine. As we noted previously, Freeport underperformed most of its peers in 2017 as markets were apprehensive over the future of its Grasberg mine. The company was also barred from exporting copper concentrates from Indonesia for almost three months after its export license lapsed in January.

Framework

Freeport has expressed optimism over a solution to its long impending issue, but a solution has been elusive. While Freeport announced a framework with Indonesia in August that raised hopes of an early resolution, the two sides haven’t been on the same page for valuations.

Outlook

While higher copper prices have supported Freeport’s price action this month, the real push might have come from optimism over a resolution of its impasse with the Indonesian government. Citing people familiar with the proposal, Bloomberg reported on December 15 that “Indonesia and Freeport-McMoRan Inc. may sign a new agreement as soon as this weekend that will lay out a road-map for the transfer of majority ownership of the giant Grasberg mine to a local firm.”  While we haven’t seen any agreement as of now, markets seem to be shedding some of its pessimism with respect to Freeport’s future in Indonesia.

Financial markets might have been a little frugal in valuing Freeport this year amid its dispute with the Indonesian government.  In the next and final article, we’ll look at Freeport’s valuation as we head into 2018.

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