Freeport McMoran Updates: Peru Miners End Strike, Wage Dispute Continues

This past week brings some relief for Freeport McMoran (NYSE:FCX) as workers have returned to their jobs, ending a two month long strike at its Cerro Verde copper and gold establishment in Peru. Although the workers and the company were unable to reach a resolution on the wage hike demand, the workers were given assurance by the regional government of Arequipa that it will mediate the issue and unilaterally draw up a wage pact to end the conflict. ^[1] The last quarter of Freeport McMoran was plagued with strikes at its Grasberg mine in Indonesia and the Cerro Verde mine in Peru over wage hike issue, inflecting severe losses for the company at these locations. Freeport, primarily a copper mining company, competes with other miners such as Southern Copper (NYSE:PCU), Codelco and Newmont Mining (NYSE:NEM).

We currently have a price estimate of $41.50 for Freeport’s stock, which is about 5% above the current market price.

See our full analysis for Freeport McMoran here.

In the most recent negotiations, the workers were offered a raise of 5 percent for 2011 and 4 percent over the next two years. However, the workers declined this offer, demanding a 6 percent wage hike in 2011 and 5.5 percent over the next two years. The union leader Leoncio Amudio said that they had called off the strike for now so that the union government can make a decision over the issue. Some of the volunteer workers helped the company run the mining operations in the region to avoid production stalling altogether. Freeport mentioned that it will not be able to meet the its production outlook for 2011 due to the srtikes at Grasberg and Cerro Verde.

The production at Cerro Verde will not reach at its optimum level, but  Indonesia’s longest running strike at Grasberg mine continues to trouble the company. Freeport had to suspend milling operations on October 22nd after protesting workers damaged the concentrate pipelines. Should the company be unable to carry out repairs and solve the labor issue during the quarter, it may lose up to 30 percent of its copper revenue from Grasberg. At current copper prices, that would amount to the loss of around $250 million in revenues.

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1. Workers back at jobs at Freeport’s Peru mine, Reuters [↩]