Freeport Sees Indonesia Deal ‘Imminently’ on Export Curbs

Freeport-McMoRan Inc. (FCX) expects to sign a deal with the Indonesian government “imminently” to resolve a dispute that has curbed production at the world’s third-biggest copper mine.

The largest publicly traded copper producer and the government have developed a memorandum of understanding under which the company would commit to help develop a smelter, Phoenix-based Freeport said today in a statement. The agreement includes reduced export taxes and higher royalties for copper and gold.

The agreement, which would enable the immediate resumption of exports, also states that Freeport and Indonesia would start negotiations immediately on changes to the company’s contract to operate in the country.

Freeport reduced operating levels this year at its Grasberg copper and gold mine after Indonesia introduced restrictions and duties on mineral exports in a bid to increase local processing. Exports of concentrates, a semi-processed raw material, have yet to resume after months of negotiations between the company and government officials.

Freeport has been able to run Grasberg at about half of normal rates because it sends some concentrate to a domestic smelter it helped build in the 1990s.

Forecasts Reduced

The memorandum of understanding is “a step in the right direction,” Paul A. Massoud, an analyst at Stifel Nicolaus & Co. in Washington, said in a note today.

Freeport fell 0.1 percent to $38.67 at 9:53 a.m. in New York. The shares have risen 2.3 percent this year.

The company reduced its forecast for copper sales by 4.7 percent to 4.1 billion pounds, and cut its prediction for gold sales by 19 percent to 1.3 million ounces. The forecasts assume that its Indonesian unit restarts exports in August.

Freeport today reported that second-quarter net income was unchanged from a year earlier at $482 million while it fell per-share to 46 cents from 49 cents. Excluding legal charges and other one-time items, profit was 58 cents a share, topping the 53-cent average of 18 analysts’ estimates compiled by Bloomberg. Sales rose 29 percent to $5.52 billion, beating the $5.35 billion average estimate.

Copper Sales

Freeport’s copper sales in the second quarter were 968 million pounds, compared with 951 million a year earlier. The average of four estimates was for 982 million pounds. The company also reported sales of 159,000 ounces of gold, 25 million pounds of molybdenum and 16.0 million barrels of oil equivalents.

The results “reflect continued strong operating performance in our North America, South America and Africa mining operations and from our oil and gas operations, partly offset by the effects of reduced output from Indonesia,” the company said in the statement.

Freeport’s average cost per pound of copper was $1.72, compared with $1.85 a year earlier.

The average copper price in the quarter was $3.09 a pound for futures on the Comex in New York, 5.2 percent lower than the same period of 2013. Gold averaged $1,290 an ounce in the quarter, 9 percent less than a year earlier.

Freeport acquired Plains Exploration & Production Co. and McMoRan Exploration Co. last year in transactions valued at about $9 billion, excluding assumed debt, to diversify into oil and gas. In May, the company agreed to sell $3.1 billion of Texas oil and gas assets to Encana Corp., and announced a day later it would use part of the proceeds to buy stakes in deep-water Gulf of Mexico projects from Apache Corp. for $1.4 billion.

(Freeport scheduled a conference call for 10 a.m. New York time. U.S. callers should dial 1-800-403-5770, international callers 1-706-679-8487. The pass code is 69002598.)

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Steven Frank, Robin Saponar

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