Mining Setbacks Continue to Dog Freeport-McMoRan
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Freeport-McMoRan (NYSE: FCX) has had to face a number of problems with its operation in Indonesia lately, but things are looking up as the company has received permission from the Indonesian government to export unprocessed ore.
This is very good news for the mining company indeed. Very soon the Indonesian government will impose new rules and restrictions on the export of mined resources. Permission is a breakthrough for the company and will make a significant difference to the stock in the near future, mostly because the company will not be required to suspend its activities for the purposes of appeasing the government.
In 2014, the country will see a ban on all raw mineral exports. In addition, a 20% export duty will be imposed on the export of ore. As a result of this, the Indonesian government asked various miners operating in the area to submit plans for smelters. The aim of this is to increase the value of Indonesia's mining sector ahead of the laws that will fall into place in 2014.
Hopefully, Freeport has successfully dealt with all of the problems it faces in Indonesia. In addition to the new laws, the company has had to deal with disgruntled employees. This month the miners at its Indonesian mines are set to strike. The reasons for the strike are, according to the workers, based on the dismissal of three employees that the miners see as unfair, as well as on safety concerns.
They believe that Freeport should be doing more to create a safe working environment in an extremely volatile part of the world for mining operations. We still don't have any details about this protest. In addition we cannot say how it will affect production at the large gold and copper Grasberg mine. If the strike does indeed take place, as I believe it will, it will not be the first. Miners at the Grasberg mine chose to halt production last year as well. That strike had a major impact on the company. It caused its profits to be hit hard.
In addition, copper prices across the board went up specifically because the Grasberg mine was out of action. If another strike occurs, the best that investors can hope for is that it will not be on quite the same scale as the last one. However, I think that this may be just a little bit too much for ask for considering the determination of the miners at Grasberg to get what they want.
Analysis of competitors will give us a better understanding of Freeport's position within the gold market. Barrick Gold (NYSE: ABX) recently ousted its CEO on the basis that the company had performed poorly during his time in charge. However, I have to wonder whether this means that the gold miner will actually change its direction in times to come. In addition it still performed better during Aaron Regent's reign than most other gold stocks through that time. In general, it is doing better than its competitors and most of the problems its faces are outside of its CEO's immediate control. That being said a plan going forward will be required in order to put the minds of stock holders at rest.
Vale (NYSE: VALE) is one of the companies that will soon be negatively affected by the new environmental permit laws introduced in Brazil that are substantially stricter than before. Mining operations in the area will most likely be significantly delayed by this. Vale has decided to cancel expansion plans in the country and is focusing more intensively on its Africa investment, Mozambique in particular, where things are going well. In fact it recently invested in a railroad for coal transportation. In addition Vale is selling its thermal coal assets in order to account for the changes.
Competitor AngloGold Ashanti (NYSE: AU) is facing significant problems at one of its mines in Ghana, in that about 9,000 illegal miners have begun to steal from the mine with no fear that they will be arrested. Not only does this result in a loss for the company, but the fact that many of these illegal miners are foreigners also tends to lead to violence between them and the locals, resulting in deaths associated with the mine. AngloGold has called for immediate action from the government in order to resolve the issue and stop it from getting worse.
Rio Tinto (NYSE: RIO) is ahead of the game in that it is one of the few mining stocks that actually has plans to expand and mine new resources. In Koodaideri, Rio Tinto has proposed the creation of an iron-ore mine that will be highly profitable. In total, the mine should yield something in the region of 70 million metric tons of iron ore each and every year for a period of three decades at least. To say the least, this is a significant step for the company, and it is developments such as this that keep the company ahead of the game.
Freeport has a lot to deal with. Its mines in Indonesia have faced a number of setbacks. Hopefully we will soon start to see a recovery in the company. However, there is still the threat of the strike by mine workers this month that investors need to worry about. A strike could cause the company to slide substantially, especially if it is on the same scale as the last strike and causes the same amount of disruption.
Perhaps the best strategy would be to deal with the strike before it takes place. If Freeport does not do something about the situation it may find it extremely difficult to recover its position anytime soon, even with permission from the Indonesian government to export unprocessed ore. Monitor the situation carefully when investing in Freeport and the industry at large.
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