Freeport-McMoRan CEO: In Face of International Woes, U.S. is Great Place to Invest

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Researched by Industrial Info Resources (Sugar Land, Texas)--Mining firm Freeport-McMoRan Incorporated (NYSE:FCX) (Phoenix, Arizona) reported fourth-quarter 2016 net income of $292 million on Wednesday, compared with a net loss of $4.08 billion in fourth-quarter 2015--a loss that primarily came from the reduction in value of the company's oil and gas properties. In a conference call regarding the company's earnings, Freeport-McMoRan Chief Executive Officer Richard Adkerson discussed some of the quandaries of international investments and how U.S. investments were again making their way onto Freeport McMoRan's books. Industrial is tracking $2.7 billion in active Freeport-McMoRan projects.

During the conference call, one of the major points of discussion was the company's developments in Indonesia, as this month the country issued rules that require foreign mining companies to divest at least 51% of their holdings in Indonesia, among other requirements that could include the stoppage of ore exports. While under the company's existing contract, Freeport is not required to conduct further divestments, the exact outcome of the new regulations on the company remains up in the air as Freeport-McMoRan attempts to renegotiate licensing and contractual agreements.

"Our contract requires no divestiture and we have documentation from the government supporting that," said Adkerson. "There's no question that if we'd had a requirement to divest 51% from the start of this contract, we would not have invested in the way that we did. ... You just don't develop an asset to sell it to somebody else at a fair market value at a certain point in time, and so that remains a matter of disagreement between us and the government, and clearly if that were a requirement, it would affect negatively our future investments for this business."

Adkerson said international arbitration on the situation was not out of the question. "We have the rights to pursue claims against the government in the form of international arbitration and our legal team advises us that our case is very strong in doing that. We have consistently represented to the government that we don't want to do that. I don't believe that would be advantageous for us, but I also think it would be very negative for the government of Indonesia. ... As long as we have the opportunity to resolve these matters in good faith, we'll continue to do it trying to reach an amicable, mutually agreeable situation."

In the face of international woes, Freeport may be turning to more domestic projects. In outlining the possibilities for major expansion projects, five of the six project opportunities were in the U.S. "As we look at the relative economics of investing in the United States or outside the United States, in recent years, investments in the United States have become increasingly attractive," said Adkerson. "The energy situation here, with the abundance of energy and the cost of energy because of the shale oil and gas developments in the United States has provided us low cost of energy. We have a workforce in the United States that is much more flexible. We have a non-union workforce. We have communities that support our employees, whereas outside of the United States, often we have to provide all the community support. ...What a change over the last 15 years when this industry was thought to be dead here, and now it's a place for great investment opportunities."

Among the projects being tracked by Industrial Info in the U.S. is a study for a second sulfuric acid plant at the company's copper mine in Safford, Arizona. If built, the 1,300-ton-per-day plant will provide acid for leaching pads at the mine. The $150 million project is expected to kick off in late 2018 and take about six months to complete.

On the maintenance side in the U.S., the company plans to perform maintenance on its open-pit copper and molybdenum mine complex in Bagdad, Arizona--one of the sites named in the conference call as a possible expansion opportunity. The shutdown is scheduled to occur this summer and will last one to two weeks.

Internationally, one of the largest planned Freeport-McMoRan projects being tracked by Industrial Info is the construction of a $2.3 billion copper smelter in Indonesia to process copper ore feedstock from the company's Grasberg mine in the country. In addition to the export restrictions and divestiture requirements, the country has been pushing miners to build smelters to process ore locally. While the project almost certainly depends on how much Indonesia will let the company go in exporting copper from the country, building the project could help in this regard. The project, once started, would take about two years to complete. Chiyoda Corporation (Yokohama, Japan) is performing engineering and procurement services for the project.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.