July 24, 2015 / 6:09 PM / 2 years ago

Freeport stock sinks as mining contract uncertainty rattles market

TORONTO, July 24 (Reuters) - Shares of diversified miner and energy producer Freeport-McMoRan sank for a second session Friday, as uncertainty around Indonesian mining contracts added to worries about spending plans, high debt and falling commodity prices.

The Phoenix, Arizona-based company has assured analysts it fully expects the Indonesian government to issue a six-month export renewal on Saturday, when the current permit expires, but questions remained on a longer-term contract.

Freeport's stock tumbled 10 percent to $12.27 on New York on Friday, after a 9 percent drop Thursday, as several analysts cut price targets.

Over the past two days, Freeport's market capitalization has shed some $2.9 billion, dropping to $12.75 billion on Friday afternoon from $15.66 billion at the close Wednesday.

Freeport, whose chairman is currently in Indonesia for talks with the government, is also negotiating terms of a contract or license that could extend to 2041.

Contract certainty is crucial, Freeport said, because it will spend $15 billion on an underground expansion at its massive Grasberg copper and gold mine, and must commit to a new smelter, estimated at $2 billion-$2.5 billion.

"Right now, more than 75 percent of our reserves are going to be produced after 2021," Freeport Chief Executive Richard Adkerson said on a conference call Thursday.

A current contract of work expires in 2021.

Freeport is looking to raise funds as it eyes a $1.2 billion to $1.6 billion investment to boost energy production.

Analysts worry there may be a weak appetite for a planned initial public offering of up to 20 percent of Freeport's oil and gas business this autumn.

"We believe the timing of this offering is not ideal and think its valuation will reflect that," said BB&T analyst Garrett Nelson in a note.

All options are on the table, said Freeport, which will consider asset sales, but does not favor an equity raise.

"None of us want to issue equity at these levels," Adkerson said. "Ultimately the board is going to protect the balance sheet, so we're going to look at all options and see what we might need to do."

Charles Bradford, president of investment research firm Bradford Research, said the sell-off in Freeport shares was overdone. Freeport's second-quarter profit beat expectations and costs were lower than he expected.

Bradford recently purchased a small number of Freeport shares due to price declines.

"In my opinion, you buy when you have to hold your nose," he said. (Reporting by Susan Taylor; Editing by Bernadette Baum)

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