Freeport Nears Agreement with Indonesia for Grasberg Mine

Freeport Nears Agreement with Indonesia for Grasberg Mine
December 20, 2017

 
Despite posting an impressive Q3 results, the stock of Freeport-McMoRan Inc. (NYSE: FCX) remained range bound between 13.50 and 15.20 for the past two months. However, last week, the stock broke above the upper band to reach $17 levels. Ironically, the price of copper has been on a decline in the past month. Freeport owns the world’s second-largest copper mine in Indonesia. The Indonesian government had passed a law earlier this year, encouraging the establishment of local smelting facilities. Further, the law forced Freeport to divest its majority stake in the Grasberg mine. The government also temporarily banned the export of copper concentrates. Following intense negotiations, Freeport, which has a 91% stake in Grasberg mine, agreed to divest its majority stake. Now, there are reports that the talks are near fruition. Thus, based on the details provided below, we expect the stock of Freeport to rally further in the days ahead.

According to a Bloomberg report, the Indonesian government and Freeport-McMoran may sign a new agreement as early as this weekend, creating a roadmap for offloading the majority stake in the Grasberg mine to a local firm. The final agreement is expected to be signed in the first-quarter of 2018. Under the new deal, Indonesian government owned Inalum (PT Indonesia Asahan Aluminium) would acquire Anglo-Australian miner Rio Tinto’s 40% interest in the joint venture and then convert it into an equity stake. Under the prevailing agreement, Rio Tinto is entitled to 40% of copper ore production above agreed levels until 2023, and 40% of all output thereafter.

If the new agreement goes through without hurdles, local ownership of Grasberg will increase to 51%. Still, Freeport will operate the project through 2041, while investing up to $20 billion through 2031 for the development of the mine.

At the end of June, Rio valued its stake in the Grasberg mine at a little over $1 billion. Rio is ready to sell its stake and exit the project as it considers Indonesia a high risk country to operate. By selling the stake, it can also avoid further capital commitments. However, Rio’s chief executive Jean-Sébastien Jacques told he will not sell assets for fire sale prices. An agreement between the Indonesian government, Freeport, and Inalum will certainly boost the valuation of Freeport in the short-term.

Technically, the stock has made a bullish breakout at 15.20. The accumulation indicator is making new highs. Thus, we can expect the uptrend to continue in the short-term.

Freeport - Technical Analysis - 19th December 2017

In order to gain from the rally, a call option can be bought from a binary broker. The contract should be active for a period of one week. Further, the stock should be trading near $17.0 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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