Shares of diversified miner and energy producer Freeport-McMoRan sank for a second session on Friday, as uncertainty around Indonesian mining contracts added to worries about spending plans, high debt and falling commodity prices.
The Phoenix, Arizona-based company has assured analysts it fully expects the Indonesian government to issue a six-month export renewal on Saturday, when the current permit expires.
According to the Indonesian government, however, the firm still needs to show its commitment to building a second copper smelting facility by setting aside an estimated $80 million into an escrow account.
“They haven’t completed the terms,” Coal and Minerals director general Bambang Gatot told reporters late on Friday, adding that his next meeting with executives is on Monday. It was not immediately clear if Freeport’s exports would be stopped.
“It depends what happens in the field,” Gatot said. “The port may still allow them.”
Questions also remain surrounding its longer-term contract.
Freeport’s stock tumbled 10 percent to $12.27 on New York on Friday, after a 9 percent drop Thursday, as several analysts cut price targets.
Over the past two days, Freeport’s market capitalization has shed some $2.9 billion, dropping to $12.75 billion on Friday afternoon from $15.66 billion at the close Wednesday.
Freeport, whose chairman is currently in Indonesia for talks with the government, is also negotiating terms of a contract or license that could extend to 2041.
Contract certainty is crucial, Freeport said, because it will spend $15 billion on an underground expansion at its massive Grasberg copper and gold mine, and must commit to a new smelter, estimated at $2 billion-$2.5 billion.
“Right now, more than 75 percent of our reserves are going to be produced after 2021,” Freeport Chief Executive Richard Adkerson said on a conference call Thursday.
A current contract of work expires in 2021, but by law in Indonesia they cannot extend this contract until 2019 at the soonest.
Freeport is looking to raise funds as it eyes a $1.2 billion to $1.6 billion investment to boost energy production.
Analysts worry there may be a weak appetite for a planned initial public offering of up to 20 percent of Freeport’s oil and gas business this autumn.
All options are on the table, said Freeport, which will consider asset sales, but does not favor an equity raise.
“None of us want to issue equity at these levels,” Adkerson said.
Charles Bradford, president of investment research firm Bradford Research, said the sell-off in Freeport shares was overdone. Freeport’s second-quarter profit beat expectations and costs were lower than he expected.
Bradford recently purchased a small number of Freeport shares due to price declines.
“In my opinion, you buy when you have to hold your nose,” he said.