Grasberg: What’s Delaying the Final Resolution?




In July, Freeport-McMoRan (FCX) announced a “Heads of Agreement with the Indonesian state-owned enterprise PT Indonesia Asahan Aluminium (Inalum) and PT Freeport Indonesia’s (or PT-FI) joint venture partner Rio Tinto.” Under the agreement, Rio Tinto (RIO) would receive $3.5 billion from Inalum for its 40% stake in PT-FI. Freeport-McMoRan will receive $350 million for roughly a 5.5% stake in PT-FI.

While the Heads of Agreement was a step forward for Freeport and Indonesia in their long-standing impasse, it fell short of a final resolution. First, the agreement is non-binding, according to Freeport. Second, the environmental issues raised by Indonesia are still on the table. Previously, the Indonesian government (EIDO) estimated that the environmental damages were $13 billion. Reuters reported that “Freeport has said it meets Indonesia’s environmental rules.”

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Baby steps

While Freeport and Indonesia have been taking baby steps towards the resolution of the Grasberg impasse, markets are still waiting for a final resolution. Notably, Grasberg is a key asset for Freeport. During the second-quarter earnings call, Freeport announced new operating plans in Indonesia that would lead to lower production in 2019 and 2020. The stock closed with a loss after its second-quarter earnings release despite posting better-than-expected results.

The upcoming presidential elections in Indonesia aren’t expected to help Freeport either. With less than a year left before the general elections, the government might not want to be seen as going soft on Freeport.

Next, we’ll discuss some of Freeport’s bullish drivers.


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