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Why Newmont Mining Corp. Is Taking a Harder Stance Than Freeport-McMoRan Inc.

Vladimir Zernov
June 18, 2014

Both Freeport-McMoRan (NYSE: FCX) and Newmont Mining (NYSE: NEM) face the problem with exporting copper concentrate from Indonesia after the country imposed a controversial 25% tax on exports back in January. While the problem is the same, the approach to the solution differs dramatically. Newmont Mining has chosen the hard approach by suspending copper concentrate production at Batu Hijau and declaring force majeure.

In turn, Freeport-McMoRan has been very gentle in rhetoric about the crisis and stated multiple times that it hopes the solution will be found soon. Why do the tactics of two companies differ so much?

There's more risk for Freeport-McMoRan than for Newmont Mining
According to the latest Freeport-McMoRan annual report, Indonesia holds 27% of the company's proven and probable copper reserves. What's more, 95% of Freeport-McMoRan's gold reserves and 37% of the company's silver reserves are there as well. The company predicts that Indonesia will account for 20% of Freeport-McMoRan's total EBITDA this year. Freeport-McMoRan's key asset in the country is the huge Grasberg mine. Rio Tinto (NYSE: RIO) holds an interest in the mine as well.

Thus, Indonesian assets are extremely valuable for Freeport-McMoRan. For Newmont Mining, the country is less important. Newmont Mining gets the majority of its revenue from Australia and the U.S. The share of Indonesia in Newmont's revenue mix declined from 15% in 2011 to just 6% in 2013. That's why Newmont Mining could afford a harder approach in the Indonesian crisis – the company has less to lose than Freeport-McMoRan.

Freeport-McMoRan has big plans for the Grasberg mine
After 2016, Freeport-McMoRan will transition the mine to underground operations. Sure, the transition requires additional investment. Prior to this transition, Freeport-McMoRan expects to grow copper sales from 4.3 billion pounds in 2014 to as much as 5.7 billion pounds in 2016. Surely, the undertaking of big projects needs good relations with local authorities. Rio Tinto is also interested in a solution to this problem, as the company has rights for 40% of total production fr