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Is Freeport’s Grasberg Transaction a Win-Win?

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Grasberg

On July 12, Freeport-McMoRan (FCX), the leading US-based copper miner, announced that the company would sell a small stake in PT Freeport Indonesia (or PT-FI). Rio Tinto (RIO) will sell its entire stake in PT-FI. PT Indonesia Asahan Aluminium (Inalum), a state-owned enterprise, plans to acquire the stakes and emerge as the largest shareholder in PT-FI after the deal closes.

There were three parties in this transaction: Freeport, Rio Tinto, and the Indonesian government. In this series, we’ll see what each party has managed to achieve by way of this transaction. But, before that, let’s see how financial markets reacted to the announcement.

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Price action

Although Freeport was trading roughly 2.0% higher in early trade yesterday, it pared the gains and finally closed with a loss of 0.40%. The broader equity markets were in the green for the day. Copper miners like Glencore (GLNCY) and Southern Copper (SCCO) also saw upwards price action as copper bounced from its lows. Read The Markets Aren’t Excited about Freeport’s Grasberg Resolution to see why markets largely gave a cold shoulder to the announcement.

To be sure, Grasberg is a key asset in Freeport’s portfolio given the mine’s vast mineral resources and low operating costs. The mine is the world’s second-largest copper mine after BHP Billiton-operated (BHP) Escondida. Grasberg also has significant gold resources and is the largest gold mine in the world.

In the next article, we’ll see what objectives were achieved with this transaction.

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