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.”
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.