By Amrith Ramkumar
Freeport-McMoRan Inc.'s shares had their worst day in two years Tuesday after the company said that its troubles mining copper in Indonesia were dragging on.
The shares tumbled 16%, their steepest slide since January 2016, while copper prices rose. Freeport was also the worst performer in the S&P 500.
Moves in copper tend to swing the shares of Freeport and other miners. But on Tuesday, investors were focused on Freeport's first-quarter results. The Phoenix-based company reported weaker-than-expected sales and profits, and gave lower guidance for future production.
Freeport is dealing with issues in Indonesia, where the giant copper and gold mine Grasberg is located. The company and the Indonesian government have been jostling for years over control of the world's second-largest copper mine.
On the earnings call with analysts, Chief Executive Richard Adkerson said ongoing negotiations over a sale of Freeport's majority stake to the government were taking longer than expected. Freeport previously said it wanted to complete a deal in the first half of the year.
The results are "certainly pouring cold water on some of the expectations that we are in the final innings of a very long, drawn-out negotiating process," said Lucas Pipes, an analyst at B. Riley. "Investors will have to deal with this. There's uncertainty and anxiety."
Adding to investor worries, Freeport said it is addressing new claims from Indonesia's Ministry of Environment and Forestry about how it handles the byproducts left over from extracting resources at Grasberg, which is located in the mountains of Indonesia.
Mr. Adkerson called the claims "really shocking and disappointing" and said they dictate Freeport meet standards in six months that realistically can't be achieved. He said the company received them last week but doesn't expect them to disrupt operations. He said they could add a distraction to the continuing negotiations over Grasberg.
"I'm concerned that behind it was political motivations," Mr. Adkerson said. "It has no impact on our view of the value of our asset."
The company also cut its 2019 copper-production projection, citing in part unexpected seismic activity from trying to ramp up operations in the Deep Mill Level Zone of Grasberg. Still, some analysts don't expect any delays to affect the company's long-term output.
Freeport plans to finish mining the available aboveground Grasberg resources this year before extracting metal underground in the future, a main reason analysts are waiting to see what form a possible deal with the government takes.
Investors pushed up the price of Freeport's shares after the company last August said it would give up its majority stake in Grasberg, reducing it to 49% from about 90%.
Analysts were further encouraged late last year when reports emerged that Indonesia wanted to evaluate acquiring the roughly 40% stake of global mining giant Rio Tinto in Freeport's future Grasberg production. Some said a possible agreement between Indonesia and Rio Tinto could limit Freeport's sale to a roughly 9% stake and make negotiations on overall price much easier.
But Mr. Adkerson said on Tuesday that Indonesia's evaluation of a possible deal with Rio Tinto took longer than expected. Some observers are worried that negotiations could stall ahead of next year's Indonesian presidential election.
Campaigning has already begun, and Mr. Adkerson said that Indonesian President Joko Widodo's political priorities could hinder progress on negotiations.
"A final resolution may have to wait until the second half of 2019," said Bill Sullivan, a Jakarta-based legal adviser to mining companies.
Write to Amrith Ramkumar at [email protected]