How Important Is Grasberg To Freeport?
Freeport-McMoRan (NYSE: FCX) owned Grasberg mines, located in Indonesia, has been in the headlines since last year as a consequence of the regulatory changes imposed by the local government in an effort to protect its home trade. Freeport is currently operating on a temporary export permit which had initially hampered the company’s sales volume in 2017. To resolve the ongoing issue, the final framework of an agreement has been negotiated between both the parties which would allow Freeport to have an unrestricted operation in Grasberg for the next 20 years. However, based on these negotiations, Freeport would also require divesting its interest in Grasberg to 49% from its current holding of ~90%. Grasberg is the second-largest copper mine in the world and hence contributes a significant proportion to Freeport’s earnings. We have created an interactive valuation model to highlight the importance of Grasberg to Freeport.
Per our analysis, Grasberg contributed ~$0.61 to Freeport’s total EPS in 2017 and is expected to contribute ~$0.59 to 2018 expected EPS. The steps to arrive at this conclusion is highlighted in our interactive analysis for the model with implied gross margin, earnings margin, and P/E assumptions. In case you have a different perspective, you can modify these assumptions in our platform to arrive at your own estimate.
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