Info in news Re: Memo of Understanding suggests, among other things, that FCX is agreeing to sell 30% of its 91% ownership of Grasberg to Indo investors. How much will that(divesting 30%) net the company? What is the value of Grasberg, after Memo of Understanding in effect and "normal production" resumes??. Annual report suggests Grasberg has 30 billion in proven copper reserves. Grasberg produces 22% of total company copper output, 91% of Gold byproduct output. Company current market cap is a shade over a billion shares times around $39/share, 39 billion. Say 40 billion for round figures. Allocate 15% of company value to O&G. I'm guessing that Grasberg is worth 30% of the 85% of the company that is mining. So say 25.5% of market cap is Grasberg. So I'll say that 30% of Grasberg is roughly equal to 8% of FCX market cap. 3.2 billion? Or do you value a mine based on a percentage of its proven reserves?
If anyone who will be on the upcoming CC reads this, I think asking management if their agreement with Indo Govt will involve divesting 30% of their Grasberg ownership is part of the MoU and how do they value the Grasberg and what do they think they will take in by selling 30% of their interest in Grasberg, would all be good questions. I'm assuming that the money they net would go almost entirely to reducing the debt load.
Max keep in mind that the new Indo Administration, whomever it is, will not take over until October. Since we've already gone two Quarters w/o concentrate exports and we can break even on Grasberg and have 500M net income even when Grasberg operates at 50% capacity, I'm betting that FCX does not sign off on MoU and turn production back on until the new regime is in place and signs off on the agreement. Just my opinion.
Max, if the Indo export tax gets settled, there is no question but that FCX can reduce their debt as they suggested, from cash flow alone. Even with Grasberg operating at 50% in Q1, and with an average copper price of $3.19, FCX generated 626 mil in Q1 Free Cash Flow, $510 million in Q1 net income. (numbers from the Qtrly rpt) Subtract roughly 330 million to pay the dividend on 1.038 billion shares, there's a quarter billion dollars plus available to reduce debt per quarter. So even if nothing changed at Indo, CX can retire a billion per year of debt. Every 10 cent/pound increase in the average price of copper FCX sells at increases revenues $275 million with no increased cost. I don't think any secondary offering of stock is needed or should be done. When Indo gets settled, earnings, and the stock will fly.
Max agree with your post. However I'm not sure NEW is doing the right thing. As long as FCX is breaking even on Grasberg at 50% output, they are able to keep their Indo workers on full pay while negotiations play out. And IMO doing so will build up some serious good will with the Indo Govt and the unions while FCX shows everyone that contracts are contracts. It is apparently important to the stability of the Indo currency on the world stage that Indo exports copper and not just concentrate. Not cutting (worker pay) to care and maintenance also keeps FCX out of the politics of the situation. Remember, they are letting us dig money out of their yard. Hope NEW doesn't get any backlash from their choice of course.
PS. DNK which neck and neck candidate would be better for FCX, but decided I'm voting for Jakarta Governor Joko "Jokowi" Widodo for Indo President (figuratively of course) . Cool name.
Agree with you bullseye, but will feel better after more of that 20+ billion in debt gets knocked down and when Indo resolved. So far 200 mil and then 1.7 bil in debt knocked down since the O&G purchases. Adkerson over in Jakarta sippin' Sake with the Indo politicos as we speak. They do sip Sake in Indonesia right??
Reality, saw your conversation with Neil. How is your health? How's "Nawlins"? I see in the news some people gettin shot up down there. And are you holding on to all your FCX? Good Luck. Brain
Hi Neil. I suggest that FCX diplomatically take a hardline w/ Indo government on everything except agreeing to chip in on building another smelter. A shortage of finished copper is in the process of developing. LME down to under 155K today, compared to 670K one year ago. Since the company diversified with income generating O&G assets and sold the Eagle Ford to buy the Apache GOM pay off 1.7B in high interest debt and still have 100M left over, no rush. Wait for the new Indo Administration after the July elections to deal.
At this time, FCX should wait until after July Indo elections. Strike the deal with the incoming folks.
See the big picture. Look at copper price trends, the LME and SHFE warehouse changes over the past 6 months. Google Oyu Tolgoi news. See US housing activity, japan economic activity. Chinese factory . And the asset sale is a positive.
FCX taking in 3 Billions on the sale of Eagle Ford. Does anyone know what it was on the books at? I'm suspecting a large one time gain plastered over an otherwise 40cents/share earnings report, covering the effect of Grasberg, with Grasberg being resolved next Q.
Chinese SHFE copper warehouse levels dropped another 27,321 tons, to 105,156 total reported. 50% drop in inventory levels in a month. Japan copper consumption up, US copper consumption up. Europe copper consumption beginning to recover off of lows. Per Adkerson, China gentle econ stimulation will have strong effect on copper use in infrastructure. Since FCX can earn 49 cents with their biggest mine operating at half capacity, maybe the 100 million pounds of decreased copper production Re: Grasberg will start to have very big effect on warehouse levels/spot price. I'm looking for a big increase in copper prices to start before the end of this Q.