Freeport-McMoRan Copper & Gold Inc. (FCX)’s Giant Grasberg Problem

Yet even Rio Tinto plc (ADR) (NYSE:RIO)’s copper shipments were delayed because of tensions between China and Mongolia. The shipments were supposed to start in June, but they didn’t begin until early July. The reason for the delay seems to be that the Mongolian government wanted to make sure it got its cut of profits from the mine.

So at least one mega mine is producing and might become a huge money maker because it’s next door to the world’s largest market for copper: China. Yet even Oyu Tolgoi’s future is questionable because of the restrictions the Mongolian government puts on it.

Rio Tinto plc (ADR) (NYSE:RIO) is going to have to ship a lot of ore from Oyu Tolgoi to make for its other losses. The ironing mining reported a quarterly year-over-year revenue growth rate of -19.6% in the last quarter of 2012. That means it will take several good years at Oyou Tolgoi just to give Rio Tinto positive revenue growth.

Conclusion

Mega-mines and the miners that own them seem to be less a value investment and more of a huge risk. Value investors would be well advised to avoid mega mines and the miners that love them.

Daniel Jennings has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.

The article Freeport McMoran’s Giant Grasberg Problem originally appeared on Fool.com.

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