Risky Business: The Grasberg Gold Mine An ... - Free West Papua

TOP TEN RISKS FOR INVESTORS IN PT FREEPORT INDONESIA
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Financial Risks
1. Worst performing stock in 1997.
Business Week placed Freeport McMoRan Copper and Gold,
Grasberg’s grand-daddy, lowest in the Standard & Poor’s 500
index for 1997 with a 53.9 percent decline in share price. USA
Today ranked Freeport McMoRan’s stock the fifth worst for
1997 because stock was worth 49.6 percent less than a year
before. By comparison the Standard & Poor’s 500 index as a
whole rose by 27.8 percent 54 . The company has lost something
in the region of three billion dollars in market capitalisation in
the midst of this bull market.
2. Copper and Gold Prices Plunge
PT Freeport’s future is completely dependent on the price of
copper and gold.Gold prices plunged heavily from close to
US$400 a troy ounce in 1996 following market jitters over
central bank gold sales.The price fell below US$300 an ounce
last November, a 12.5-year low, while copper prices hit a three
year low from US$1.25 a pound in 1995 to 93 cents in late
1997.The Asian economic crisis is expected to significantly curtail
demand for copper, keeping the price low for the foreseeable
future.
3. CEO Compensation
Executive compensation at Freeport McMoRan is indicative of
the misguided priorities in the corporation.Moffett’s pay was
more than 33 times greater than his nearest competitor in the
gold industry, Ronald Cambre of Newmont, whose company
raked up a 42 percent sales increase last year versus Freeport’s
five percent.Moffett has consistently been ranked as overpaid
since 1990 by Graef Crystal,the corporate compensation
expert 55 . Meanwhile his company consistently underperforms—
from the bottomline to the higher moral ground.
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Security Risks
4. Local Riots
In both 1996 and 1997,riots in Timika were sparked off by
confrontations between Freeport and military personnel and
local people.A number of people were killed in each incident,
and Freeport’s vehicles,equipment and laboratories were
smashed by angry crowds.Not only do these threats cost
money and cause work to be stopped or slowed they illuminate
the bigger risk of the Indonesian military enforcing a protection
racket on the company.
5. Security: Response or
Racket?
Observors have speculated that
much of the violence in the Timika
area is military-induced and enacted
56 .This is perceived as a warning
to PT Freeport not to try to
reduce their dependence on the
military or withhold payments
made to them.Lesser stories of a
standover abound—like the
unloading of PT Freeport’s warehouse
supplies by soldiers in
Tembagapura or the commandeering
of company helicopters to
which the company turns a blind
eye 57 .The risk that this entails is
obvious—ranges from the company losing complete control at
the mine to getting bad publicity due to the ongoing violent
actions by security.
6. Indonesian Instability
Indonesia is undergoing its greatest political and economic crisis
since Suharto took power in 1965 58 . Many observers believe
Suharto will have to leave office very soon,if he does not die
before he is forced out.PT Freeport’s future is tied to that of
the dictator. Potential leaders of a post-Suharto Indonesia,
including Amien Rias,have already spoken out about the
favoritism this company has received due to its links to the
Suharto’s companies.
Independent Annual Report on P.T. Freeport Indonesia