Shares of Freeport-McMoRan Inc. (FCX 3.39%) tumbled on Tuesday, falling nearly 16% by 3 p.m. EDT after the company reported first-quarter results and an update on its Grasberg mine in Indonesia.
Freeport-McMoRan reported adjusted net income of $679 million, or $0.46 per share, which was $0.10 per share below analysts' expectations. That's due mainly to weaker-than-expected production. While copper sales of 993 million pounds came in close to the company's 1 billion pound estimate, gold sales were only 610,000 ounces, which was below the company's 675,000-ounce forecast. The culprit was lower-than-expected rates due to maintenance activities at Grasberg.
In addition to that lackluster quarter, Freeport-McMoRan also warned of new problems at its Grasberg mine. The company said the Indonesian government could delay the company's new operating contract for the mine due to a change in how it manages waste. CEO Richard Adkerson stated that what the government is asking for "just cannot be done" and that the new demands are "shocking" and "disappointing." However, he did say that he thinks the company would eventually resolve its differences with the government.
Grasberg is vital to Freeport-McMoRan since it currently supplies the company with roughly a third of its copper output and virtually all its gold. Because of that, the company doesn't have much leverage in its negotiations with Indonesia, meaning it needs to meet the demands if it wants to continue operating this mine. While the latest disagreement could weigh on the stock in the near term, Freeport-McMoRan can't afford to walk away, making it likely that it will eventually find a solution that could help erase at least some of today's decline.