Light at the End of the Tunnel for Freeport-McMoRan and Newmont Mining

Freeport-McMoRan and Newmont Mining are close to winning the battle over controversial Indonesian copper concentrate export taxes.

Apr 14, 2014 at 2:18PM

It's already been more than three months since Freeport-McMoRan (NYSE:FCX) and Newmont Mining (NYSE:NEM) halted their copper concentrate exports due to new heavy taxes imposed by the Indonesian government. Both companies started long negotiations with government officials to lower the tax burden. At first, the government was reluctant to give up its positions. However, as the halt in copper concentrate exports hurts Indonesia as well as Freeport-McMoRan and Newmont Mining, it looks like the government is ready to lower the tax.

Freeport-McMoRan and Newmont Mining close to winning the battle
Reuters recently reported that the Indonesian mining ministry has recommended lowering the export tax to no more than 10% for Freeport-McMoRan and Newmont Mining, down from the heavy 25% imposed back in January. However, the companies are not eager to pay more than 5%.

In my view, Freeport-McMoRan and Newmont Mining could try to gain more ground, as they've already committed to paying a 5% deposit for building a new smelter in the country. Building a new smelter in Indonesia, which has only one smelter in Gresik, was the main proclaimed target of the tax. The smelter demands significant capital investments, so a higher tax rate will discourage both Freeport-McMoRan and Newmont Mining from committing to a large project.

First quarter results will be affected
Both Freeport-McMoRan's and Newmont Mining's first quarter results will look bleaker than previously expected due to the halt in copper concentrate exports. Lower copper prices will also add to pressure on Freeport-McMoRan's results. Worrying data from China kept copper prices closer to $3 per pound for the most part of March and the beginning of April.

Although Freeport-McMoRan diversified into oil and gas last year, its oil and gas revenues accounted for only 21% of total revenues in the fourth quarter. This means that the company continues to be heavily dependent on its mining revenues. In fact, the drop in copper prices is a bigger factor than the halt of copper concentrate exports for Freeport-McMoRan.

To a lesser extent, low copper prices affect another major copper producer, Rio Tinto (NYSE:RIO). In turn, Rio Tinto, which got 11% of total revenues from its copper unit last year, is heavily exposed to the softness in iron ore prices.

The situation with copper concentrate exports will significantly impact Newmont Mining's copper unit's results, as copper from Indonesia accounted for 58% of company's total copper production in the fourth quarter. Still, gold prices are more important for Newmont, as it is primarily a gold miner. The company expects that its all-in sustaining costs will be $1,075-$1,175 per ounce of gold in 2014, higher than costs of its major peers Barrick and Goldcorp. The relative weakness in expected costs performance weighs on Newmont Mining's shares, although they are up 6% this year.

Bottom line
Freeport-McMoRan and Newmont Mining are close to winning the battle over taxes. The fact that the Indonesian government shows readiness to lower the tax means that it feels the pain from missing copper concentrate exports profits. In such conditions, Freeport-McMoRan and Newmont Mining have good cards on hand to negotiate a better deal.

OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Vladimir Zernov has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers