Will Freeport-McMoRan Clear Its Latest Hurdle?
Freeport-McMoRan Copper & Gold appears to be headed for a final 2013 share price in line with its level at the year's outset. End of story -- except that it's likely not.
For starters, Freeport's price chart for this year resembles a ski-jump platform that you'll see at the upcoming Winter Olympics in Sochi, Russia, rather than a medical flat line. While the year's beginning and end levels are likely to be similar, the company's shares dropped from about $35 in early January to near $27 in June, before returning to slightly above $35 on Wednesday.
It's almost certain that the company's slide can be attributed to the combination of difficulties at its giant Grasberg copper and gold mine in Indonesia, a dip in copper prices, and a pair of initially questionable oil and gas acquisitions. While that trio of woes has been largely corrected, leading to the share-price rebound, other looming problems in Indonesia could cast a pall over the company's Grasberg operations in 2014.
One whacky notion
It seems the parliament in Jakarta is bent on implementing a January ban on the export of raw, or unprocessed, mineral ores from Indonesia. The difficulty with that edict lies with a shortage of smelters in the country. Unless cooler heads prevail, Freeport, a key source of the country's export income, will be forced to chop up to 60% of production at Grasberg, the world's second-largest copper mine. Similarly, Newmont Mining may be forced to substantially curtail operations at its Batu Hijau mine in Indonesia.
While other branches of the government are endeavoring to solve what would obviously be a financially destructive measure, Freeport is hardly rolling over. Last week the company said, "We intend to honor and abide by our contract of work which allows the company to export concentrates and to promote economically feasible downstream investments."
I find it difficult to believe that, given the importance of revenue from the Freeport and Newmont mining operations, wisdom won't ultimately result in a thwarting of the parliament's shenanigans. Nevertheless, Freeport's first-quarter results could be affected by Grasberg, which plays a significant role in the company's overall results.
Other woes eradicated
Meanwhile, other recent problems at Freeport are largely under control. During the past couple years, the company had been hindered by work stoppages by unions operating at Grasberg. Freeport CFO Kathleen Quirk noted at a recent Goldman Sachs Global Metals & Mining/Steel Conference that the miner has just concluded a two-year labor agreement at Grasberg.
Copper prices, while below the more than $3.80 per pound seen early this year, are nevertheless perched above $3.30. That compares to a flirtation with $3 last summer.
In the spring, Freeport-McMoRan concluded the acquisitions of Plains Exploration & Production and McMoRan Exploration. When the purchases were announced a year ago, shareholders and analysts were nonplussed, to say the least, about both the company's departure from its mining base and the overlaps that existed among officersand directors of the three companies. Subsequently, however, the promise of oil and gas activities in the Eagle Ford, California, and the deepwater Gulf of Mexico appears to have mollified most former naysayers.
I noted at the beginning of this article that Freeport's shares are about flat with their early year levels. That's hardly an indictment. Newmont's shares have plummeted by about 50% during the same period, while those at Southern Copper , Freeport's largest U.S.-based copper competitor, have slid by a third. And Australia's BHP Billiton , the world's-largest mining company, which also conducts oil and gas operations, has watched its shares recede by 20%.
So even with an Indonesian minerals export ban possibly coloring its prospects, Freeport clearly possesses far more positives than problems. On that basis alone, the company clearly warrants attention from Fools looking to strengthen their portfolios for the fast-approaching new year.
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The article Will Freeport-McMoRan Clear Its Latest Hurdle? originally appeared on Fool.com.Fool contributor David Smith owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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