FCX and Grasberg copper mineHi Travis, do you have a take on the impact of Freeport McMoran & Rio Tinto handing over control of the Grasberg mine to Indonesian control? How will this affect an investment in FCX since probably 1/3 of its value rests in this mine?
William Ford
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I have had call options on Freeport from time to time, since it tends to be the first copper play Wall Street looks at when they want to speculate on that metal… but I think it’s pretty high risk with the continuing shift to Indonesian control. Resource nationalism is a risk almost everywhere, of course, and the stock is very cheap because of that risk perception and worries about mining in general, so you just have to determine whether the risk is accounted properly in the rewards — the bigger issue might be the renewed environmental concerns in the Indonesian government, which could bring more fines or costs in the future. I don’t have any insight into whether those concerns are real or it’s a government shakedown.
The earnings were good today, but clearly there’s a lot of worry about political risk and copper prices with the trade war talk possibly slowing industrial activity. Freeport has been underperforming its sector for a while, with a lot of volatility from the up-and-down relationship with the government over that massive Grasberg mine, so it will take quite a strong stomach to hold it, I imagine… but it’s dramatically cheaper than Southern Copper (SCCO), which is the only other big copper miner I’ve looked at recently, and at some point risk does usually get adequately “priced in.” Dunno if it’s there yet, and I’m not betting big on copper in general.
thanks Travis. I really appreciate your insight on this and in general. Keep up the good work!