Freeport-McMoRan (FCX) has not been very successful with mining projects across the globe lately.
There are a number of issues that have been causes for concern in recent weeks. Members of local communities living near the Fungurume copper/cobalt mine in the Democratic Republic of Congo, are enraged with the mining company right now. The locals are accusing the company of "not delivering on its pledge to create substantial employment for locals or to implement community development initiatives." The relationship between the company and the community is described as "tense," which is a nice way of saying there is not going to be an easy way out of this situation for Freeport. The locals feel aggrieved, and they claim the company is not hiring them so it does not have to deal with their complaints.
Their response is understandable, as many local farmers had to make way for the mine to be put into place. It seems that the company has failed to deliver on its promises or to adequately compensate the farmers for their losses. Even the current compensation program is only scheduled to continue for three years. Freeport denies all the claims and states that there are sufficient measures in place to ensure that the locals are able to support themselves.
In my mind, there are two key negative effects that these events can have on the company. First, bad press is never good for a stock. It makes the company seem heartless, regardless of whether or not the allegations are true. Investor's perceptions are affected more than they may realize by news stories such as this one. Second, if the unrest turns violent, there may be physical disruption to the work that the company does in the DRC. This would be harmful to the company as it would impede production. At this point, we cannot say whether or not this violence is likely to happen, but it is something to be on the lookout for.
Unfortunately, this is not the only Freeport mine where tensions are high. Freeport recently reported that it was concerned about the high levels of violence in areas surrounding its mines in Indonesia. It also stated, however, that it is confident that it can reach an understanding with the government in Jakarta. These events took place earlier this month, and they continue to worry stockholders who are wondering whether or not the company will be able to maintain control of the situation. The biggest concern was the violent action that locals took against the mining company's facilities. This is quite dangerous for the company, as significant damage caused could result in a decrease in production from the mine. At the same mine, the company recently had to endure a three-month strike from its employees, leading it to declare a force majeure. During this strike, a substantial amount of damage was done, which has already set the company back substantially.
As all of these news events illustrate, Freeport is not doing very well and is not one of the better mining companies to invest in when considering the present climate. Other options have far better prospects, although several of the company's competitors are also suffering.
Serious setbacks face BHP Billiton (BHP) in its activities in Australia at its Olympic Dam copper and uranium mine project. Although the company has the approval to expand its mine, it does not seem like the company will go ahead with the investment. This is a result of the huge drop in commodity prices that no one saw coming. The government of South Australia has stated that if BHP Billiton does not begin construction by the end of this year, it will withdraw permission for the expansion and will not grant any extensions. As a result of this delay, BHP Billiton stock will likely drop in the near future.
AngloGold Ashanti (AU) recently made the decision to purchase the remaining 50% of the Crixas mining project from Kinross Gold (KGC). Kinross is attempting to get rid of non-core assets such as this one in order to optimize its portfolio. The purchase is great news for AngloGold Ashanti, as it will own the mine entirely and will now be able to substantially increase its output from Brazil. The company will also be able to solidify its presence in this country that has proven to be something of a "gold mine" for it in the past. In turn, I believe AngloGold Ashanti stock will be on the rise, as this purchase will bring positive results.
Barrick Gold (ABX) is a mining competitor that always seems to have the right idea about how to do things. Recently, it signed a new software license agreement with ARANZ Geo for its Leapfrog Mining geological modeling and project evaluation software system. This means that the company will continue using a great system that allows it to have an excellent understanding of the geology in the area where it is mining. As a result, the company improves its ability to engage in successful exploration activities. I believe other companies could learn from this example. It also recently purchased the Mill Canyon property in Nevada from Victoria Gold. As the company continues to expand and improve its business, Barrick Gold stock will likely be going up.
Goldcorp (GG) is experiencing some difficulties that will probably have long-term consequences on the stock. About a month ago, Chile's Supreme Court suspended a key permit for Goldcorp's El Morro copper-gold project. This adds to a negative image of the company that is beginning to form following the lawsuit that it is in with Barrick Gold regarding the ownership of the El Morro mine. This is a project that is controversial, but it would serve as a significant source of revenue for the company. On average, it would be expected to produce 210,000 ounces of gold and 200 million pounds of copper per year for seventeen years. Therefore, it is in the best interest of the company for this project to go through. In the current situation, however, this may be unlikely, and the suspension on its permit will likely lead Goldcorp stock to drop.
There are some mining companies that are succeeding and some that are struggling. Among the ones that are struggling, furthermore, Freeport may be the one with the greatest cause for concern. Competitors like Barrick Gold and AngloGold Ashanti look to be good companies to invest in at the moment. I would recommend that potential investors steer clear of Freeport though, as I think the trouble with workers and local residents will continue to have negative impacts on the stock.