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Freeport-McMoRan: Indonesian-Related Sell-Off

May 01, 2018 9:49 AM ETFreeport-McMoRan Inc. (FCX)RIO50 Comments
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Healthy Wealth Coach


  • Freeport-McMoRan is undeniably cheap based on Price/Free Cash Flow.
  • Yet frustrated shareholders are losing patience with the endless Indonesian problems.
  • Rising dividends and the eventual resolution of Indonesian issues should push Freeport shares up to $30, at which point investors should begin exiting their positions.

This week brought us another earnings release from Freeport-McMoRan (NYSE:FCX) and another conference call that focused almost entirely on Indonesia and the Grasberg Mine. Investors completely ignored, yet again, the incredibly strong earnings power of the company, the balance sheet that is growing healthier with each day, and the resumption of the dividend and the communication that investors should expect a dividend increase and/or special dividends going forward.

One single issue took the spotlight. The Indonesian Government is now demanding Freeport stop dumping tailings in the nearby Ajkwa River, something Freeport has been doing since it began mining Grasberg over two decades ago. Based on the reaction of the shares, one would think Freeport will have to shut down Grasberg. The market has shredded shares of the stock, sending it down almost 20% in a matter of days. Once again we now have the company trading so cheap that it's almost fully discounting the existence of the Grasberg mine. How many times will Freeport-McMoRan sell off because of Indonesia?

ChartFCX data by YCharts

"It cannot be done"

The overall message on the conference call from Freeport management is that new environmental standards, were they to be put into place, are impossible to comply with.

It cannot be done within six months, 24 months, 5 years. This is so far out of bounds. It cannot be done.

Richard Adkerson- Freeport-McMoRan CEO on Q1 Conference Call

The government is demanding that Freeport retain 95% of the mine waste that it produces. Currently, they are only required to retain 50%. The other 50% goes downriver and eventually out into the ocean. Remember, Grasberg is very mountainous, and it's also massive. The mine produces about 10,000 tons of tailings per hour, and you simply cannot store that much waste in the mountains.

Logically, it

ChartFCX Net Financial Debt (Quarterly) data by YCharts

This article was written by

Healthy Wealth Coach profile picture
I am a value oriented, contrarian investor with almost 3 decades of experience in the stock market and fifteen years of experience investing in real estate. In the stock market I have found that the best investing opportunities occur when quality companies are priced for incredible stress or even complete failure by the ever manic-depressive Mr. Market. I find myself the most interested in companies when the market is overwhelmingly pessimistic towards them.

Analyst’s Disclosure: I am/we are long FCX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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