Grasberg ethics slap, royalty hike, state control tussle can't stop Freeport's upward march
On Friday, New Zealand's public pension announced fund that it has pulled out its investment, worth more than $1 million, from Freeport-McMoran Copper & Gold (NYSE:FCX) over concerns about allegations of human rights violations faced by the company at its Grasberg mine in west Papua, Indonesia.
The fund cited ethics problems with Indonesia’s police and military forces under the company’s payroll and "concerns over requirements for direct payments to government security forces by the company in at least two countries in which it operates."
The storied copper and gold mine in the remote Indonesian province has been the jewel in the crown of Freeport for decades and the Phoenix-based company keeps a tight grip on the project despite frequent worker strikes, occasional outbreaks of sectarian violence and political interference.
The open pit and underground Grasberg hosts the world's largest copper deposits and is the world's largest gold mine – in 2011 it produced 1.4 million ounces of gold. It accounts for almost a fifth of Freeport's earnings.
Freeport's stock – worth $37.5 billion in New York – shed 1.5% on Friday on a generally down day for miners and the broader market, but the company has not been hurt by a slew of potentially damaging news out during the quarter.
The counter is up 25% since July 25 when news first emerged that the Indonesia has "requested" 51% of Grasberg in a mooted domestic IPO of Freeport's Indonesian operations.
The country surprised the global mining community in March with a new rule that forces all foreign mining companies to sell majority stakes in their mining operations to locals by the tenth year of production.
Although ostensibly Government Regulation No. 24 of 2012 does not apply to existing projects like Grasberg that came into being under Indonesia's Suharto regime, polite "requests" for control may become edicts in future.
Last week Indonesia announced that it will require mining companies including the local divisions of Freeport and Vale SA (NYSE:VALE) to increase royalty payments to 10%. Freeport currently pays 3.5% for mining copper and 1% for gold.
A task force set up by the government of Indonesia will be reviewing ownership and taxation for resource companies operating in Southeast Asia’s largest economy and make recommendations for the next year.