In a July 13, 2018, research note, CIBC analyst Oscar Cabrera reported that Freeport-McMoran Copper & Gold Inc (NYSE:FCX) entered a nonbinding agreement with state-owned PT Indonesia Asahan Aluminium (INALUM) and Rio Tinto (LON:RIO) regarding the Grasberg joint venture (JV) project in Indonesia.
Upon closing of the transaction, expected in the second half of 2018, PT Freeport Indonesia will own 60% of Grasberg, and INALUM will own the remaining 40%, after 2022. "The successful closing of the Grasberg transaction should close the price:net asset value gap to peers," Cabrera added, referencing Freeport McMoRan.
The analyst provided the agreement's terms, which are:
- INALUM would acquire Rio Tinto's 40% interest in the Grasberg JV for $3.5 billion. (Rio Tinto is PT Freeport Indonesia's JV partner in Grasberg. PT Freeport Indonesia is a subsidiary of Freeport-McMoRan.)
- INALUM would acquire 100% of Freeport McMoRan's interest in PT Indocopper Investama for $350 million. (PT Indocopper owns 9.36% of PT Freeport Indonesia). On closing of the transaction, INALUM would own ~51% of PT Freeport Indonesia, and Freeport McMoRan would own ~49%.
- Rio Tinto "would forego to Freeport [McMoRan]" an amount equal to the former's share of JV cash flows received between Jan. 1, 2018, and the deal's closing.
Cabrera noted for the deal to go through that PT Freeport Indonesia's mining rights need to be extended through 2041. Shareholders need to develop and agree on an arrangement for Freeport's continuing management of PT Freeport Indonesia's operations. Also, environmental regulatory issues need resolving.
Upcoming catalysts for Freeport-McMoRan, indicated Cabrera, include a rising copper price, a successful closing of the Grasberg transaction, "a potential special dividend and/or share buyback by the end of 2018 and execution of the Lone Star development project over the next 18 months."
As for Freeport generally, Cabrera asserted, "We continue to consider Freeport as the best-in-class North American copper miner." CIBC maintained its Outperformer rating and $20 per share price target on the copper miner, whose stock is trading today at around $16.77 per share.
Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.