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'Best-in-Class Copper Story' Inks Deal with Indonesia
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A CIBC report discussed the terms and implications of the agreement.

Copper tubes.

In a July 13, 2018, research note, CIBC analyst Oscar Cabrera reported that Freeport-McMoRan Inc. (FCX:NYSE) entered a nonbinding agreement with state-owned PT Indonesia Asahan Aluminium (INALUM) and Rio Tinto regarding the Grasberg joint venture (JV) project in Indonesia.

Upon closing of the transaction, expected in the second half of 2018, PT Freeport Indonesia will own 60% of Grasberg, and INALUM will own the remaining 40%, after 2022. "The successful closing of the Grasberg transaction should close the price:net asset value gap to peers," Cabrera added, referencing Freeport McMoRan.

The analyst provided the agreement's terms, which are:

  1. INALUM would acquire Rio Tinto's 40% interest in the Grasberg JV for $3.5 billion. (Rio Tinto is PT Freeport Indonesia's JV partner in Grasberg. PT Freeport Indonesia is a subsidiary of Freeport-McMoRan.)
  2. INALUM would acquire 100% of Freeport McMoRan's interest in PT Indocopper Investama for $350 million. (PT Indocopper owns 9.36% of PT Freeport Indonesia). On closing of the transaction, INALUM would own ~51% of PT Freeport Indonesia, and Freeport McMoRan would own ~49%.
  3. Rio Tinto "would forego to Freeport [McMoRan]" an amount equal to the former's share of JV cash flows received between Jan. 1, 2018, and the deal's closing.

Cabrera noted for the deal to go through that PT Freeport Indonesia's mining rights need to be extended through 2041. Shareholders need to develop and agree on an arrangement for Freeport's continuing management of PT Freeport Indonesia's operations. Also, environmental regulatory issues need resolving.

Upcoming catalysts for Freeport-McMoRan, indicated Cabrera, include a rising copper price, a successful closing of the Grasberg transaction, "a potential special dividend and/or share buyback by the end of 2018 and execution of the Lone Star development project over the next 18 months."

As for Freeport generally, Cabrera asserted, "We continue to consider Freeport as the best-in-class North American copper miner." CIBC maintained its Outperformer rating and $20 per share price target on the copper miner, whose stock is trading today at around $16.77 per share.

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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from CIBC, Freeport McMoRan Inc., July 13, 2018

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

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Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers.
Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Kirkland Lake Gold Ltd.

∑ CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Freeport-McMoRan Inc. in the next 3 months.

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