Freeport-McMoRan Inc. (FCX) has signed a Memorandum of Understanding (MOU) with the government of Indonesia which has granted it the approval to resume operations at its Indonesian subsidiary PT Freeport Indonesia (PT-FI). With its export permit, Freeport stated that it will resume full operations immediately, with concentrate shipments expected to start in Aug 2014 from the Grasberg mine in Papua.
Under the MOU, PT-FI has agreed to increase royalties to 4% for copper and 3.75% for gold from the existing rates of 3.5% and 1%, respectively. PT-FI will also have to provide a $115 million assurance bond to support its commitment for smelter development.
In Jan 2014, the government introduced a regulation regarding export duties to incorporate reduced rates for copper concentrate exports for companies engaged in smelter development. Under a revised regulation introduced in Jul 2014, Freeport will pay a 7.5% duty on its copper concentrate exports, but the rate drops to 5% when development progress exceeds 7.5%, and eventually becomes 0% once investment in the project exceeds 30% of total cost.
Per the MOU, the government and PT-FI have agreed to negotiate an amended Contract of Work (COW), to be completed over the next six months, to address provisions related to the size of concession area, royalties and taxes, domestic processing and refining, divestment, local content and continuation of operations post-2021.
Freeport currently holds a Zacks Rank #3 (Hold).
Other mining companies with a favorable Zacks Rank include Atlatsa Resources Corp. (ATL), Kazakhmys PLC (KZMYY) and Alcoa Inc. (AA). All of them hold a Zacks Rank #2 (Buy).
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