Freeport Is Worst Performer in S&P 500 as Indonesia Troubles Pound Shares--Update
April 24 2018 - 5:31PM
Dow Jones News
By Amrith Ramkumar
Freeport-McMoRan Inc.'s shares had their worst day in two years
Tuesday after the company said that its troubles mining copper in
Indonesia were dragging on.
The shares tumbled $2.73, or 15%, to $16.08, their steepest
slide since January 2016, while copper prices rose. Freeport was
also the worst performer in the S&P 500.
Moves in copper tend to swing the shares of Freeport and other
miners. But on Tuesday, investors were focused on Freeport's
first-quarter results. The Phoenix-based company reported
weaker-than-expected sales and profits, and gave lower guidance for
future production.
Freeport is dealing with issues in Indonesia, where the giant
copper and gold mine Grasberg is located. The company and the
Indonesian government have been jostling for years over control of
the world's second-largest copper mine.
On the earnings call with analysts, Chief Executive Richard
Adkerson said ongoing negotiations over a sale of Freeport's
majority stake to the government were taking longer than expected.
Freeport previously said it wanted to complete a deal in the first
half of the year.
The results are "certainly pouring cold water on some of the
expectations that we are in the final innings of a very long,
drawn-out negotiating process," said Lucas Pipes, an analyst at B.
Riley. "Investors will have to deal with this. There's uncertainty
and anxiety."
Adding to investor worries, Freeport said it is addressing new
claims from Indonesia's Ministry of Environment and Forestry about
how it handles the byproducts left over from extracting resources
at Grasberg, which is located in the mountains of Indonesia.
Mr. Adkerson called the claims "really shocking and
disappointing" and said they dictate Freeport meet standards in six
months that realistically can't be achieved. He said the company
received them last week but doesn't expect them to disrupt
operations. He said they could add a distraction to the continuing
negotiations over Grasberg.
"I'm concerned that behind it was political motivations," Mr.
Adkerson said. "It has no impact on our view of the value of our
asset."
The company also cut its 2019 copper-production projection,
citing in part unexpected seismic activity from trying to ramp up
operations in the Deep Mill Level Zone of Grasberg. Still, some
analysts don't expect any delays to affect the company's long-term
output.
Freeport plans to finish mining the available aboveground
Grasberg resources this year before extracting metal underground in
the future, a main reason analysts are waiting to see what form a
possible deal with the government takes.
Investors pushed up the price of Freeport's shares after the
company last August said it would give up its majority stake in
Grasberg, reducing it to 49% from about 90%.
Analysts were further encouraged late last year when reports
emerged that Indonesia wanted to evaluate acquiring the roughly 40%
stake of global mining giant Rio Tinto in Freeport's future
Grasberg production. Some said a possible agreement between
Indonesia and Rio Tinto could limit Freeport's sale to a roughly 9%
stake and make negotiations on overall price much easier.
But Mr. Adkerson said on Tuesday that Indonesia's evaluation of
a possible deal with Rio Tinto took longer than expected. Some
observers are worried that negotiations could stall ahead of next
year's Indonesian presidential election.
Campaigning has already begun, and Mr. Adkerson said that
Indonesian President Joko Widodo's political priorities could
hinder progress on negotiations.
"A final resolution may have to wait until the second half of
2019," said Bill Sullivan, a Jakarta-based legal adviser to mining
companies.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
April 24, 2018 17:16 ET (21:16 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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