Freeport slides on Indonesia environment demands, weaker outlook

(Reuters) - Shares of Freeport-McMoRan Inc FCX.N fell more than 14 percent on Tuesday after the miner revealed onerous environmental demands from Indonesia's government that could delay a new contract for its massive Grasberg copper mine.

The world’s biggest listed copper miner also lowered its copper sales forecast for the year while raising its outlook for costs, and reported a weaker-than-expected quarterly profit.

Phoenix, Arizona-based Freeport has been in tricky negotiations with Indonesia to secure long-term operating rights at Grasberg, after the government introduced new rules last year aimed at giving it greater control of its resources.

On Tuesday, the company said the environment ministry wants it to change the way it manages the disposal of mine waste, or tailings, at the world’s second-biggest copper mine. The current disposal system has been in place for the last 20 years.

“We had an agreement with the government that over the life of the mine, we would retain 50 percent of the tailings on land. They’re now saying it should be 95 percent, which just cannot be done,” Freeport Chief Executive Richard Adkerson said on a conference call.

He described the ministry’s demands as “shocking” and “disappointing” but said he was confident that a resolution would be found. He also said that the tailings, which are moved from the mine in a high-lying area by a river system to a cordoned-off area in lowlands, were benign.

Despite the reassurances, Freeport’s stock fell to its weakest level in four months, touching $16.06.

The market was speculating that the government’s tougher stance on tailings “could potentially prolong negotiations on divestment,” Clarksons Platou analyst Jeremy Sussman said.

In exchange for securing the right to keep operating Grasberg, Freeport has to divest a 51-percent stake in the mine to the government, which currently owns 9.36 percent of Freeport Indonesia.

Earlier, Freeport reduced its copper production forecast for this year to 3.8 billion pounds from 3.9 billion and raised its copper cash cost forecast to $1.01 a pound from a previous 97 cents.

The company also highlighted seismic issues at Grasberg that could lower production in 2019.

Attributable profits rose to $692 million, or 47 cents per share, in the quarter ended March, from $228 million, or 16 cents a share, a year earlier, helped by higher copper prices.

But excluding one-time charges, profit was 46 cents per share, well below analysts’ forecasts for 56 cents.

Reproting by Nicole Mordant in Vancouver; Additional reporting by Karan Nagarkatti in Bengaluru; Editing by Frances Kerry and Rosalba O’Brien