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How Much Can a Delay in Freeport's Negotiation With Indonesia Impact its Share Price?

Freeport-McMoRan ( FCX ) saw significant volatility in its performance in 2017 largely driven by the uncertainty with respect to its Indonesian operations. In this article we provide a brief explanation of the current situation in Indonesia and a possible downside to our price estimate for Freeport, in the case that its negotiations with Indonesia are further delayed and are not resolved by the end of 2018.

What happened in 2017: Brief Background

Freeport was unable to take complete advantage of higher copper pricing environment in 2017 as the company's operations were disrupted due to the uncertainty occurring in Indonesia. The Indonesian government had initially banned copper exports from the country in January which Freeport was able to elude in April through a temporary six-month permit. The company had been engaged in a series of negotiations with the Indonesian government over the terms governing the company's operations in the country in the long term which led to a further extension of its export permit in October along with a new proposed framework of agreement which is yet to take a formal ground.

What to Expect in 2018?

The primary issue obstructing Freeport's finalization of its contract with the Indonesian government is the divestment of its stake in the Grasberg mine to 49%. As per the latest details, the contract is expected to be finalized by June which would allow Freeport to resume normal operations in 2018. However, a further delay in signing a final agreement would lead to an extended disruption in Freeport's operation in 2018. This would subsequently create a negative impact on Freeport's share price.

We have created an interactive model that details how a change in the shipment volume for 2018 from Indonesia could create a downside of 4% to our current price estimate for Freeport.

Have more questions about Freeport? See the links below.

Have more questions about Freeport? See the links below.

Freeport has a quota to ship up to 1.1 million tons of copper under its current license through to Feb. We expect this license to be further extended before signing the final agreement. Freeport will release its Q4 2017 and full year 2017 results on 25th Jan, which should provide us greater clarity on its ongoing discussion with the Indonesian government.

  • Freeport-McMoRan: The Year in Review
  • Will Freeport Be Able to Take Advantage of Elevated Copper Prices in Q4?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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