The US Securities and Exchange Commission has launched an investigation into Freeport-McMoRan Inc. (NYSE: FCX) regarding potential undisclosed seismic risks at its $3.7 billion copper smelter complex in Indonesia, according to a report from Bloomberg which cited sources familiar with the matter.
The investigation stems from a 2022 whistleblower complaint filed by a former senior engineering contractor, who was initially hired by Freeport in 2019 to evaluate designs for global projects. The contractor alleges that the facility, located in East Java’s special economic zone, could collapse during a major earthquake. The complaint claims the company disregarded expert advice and implemented engineering designs that failed to meet Indonesian earthquake-resistance standards.
Freeport-McMoRan strongly denies these allegations. Company spokesperson Linda Hayes said that the smelter project underwent multiple expert reviews confirming full compliance with Indonesian building codes. “Safety remains Freeport’s number one priority,” Hayes emphasized, adding that the company discloses all material information about its business in public filings.
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The 272-acre complex, situated on reclaimed coastal land designated as a “high hazard zone,” has drawn scrutiny from multiple engineering experts. According to the whistleblower complaint, University of Illinois expert Youssef Hashash reviewed the designs and found that the engineering firm Golder Associates had misused his seismic analysis software. Hashash reportedly warned against building on soil prone to liquefaction. A subsequent review by California Polytechnic State University engineering professor Robb Moss, requested by two senior project engineers, delivered an “inconclusive” report.
The complaint further alleges that an Indonesian engineering firm’s analysis in May 2020 supported these concerns. However, Golder later defended its original analysis as “valid” and suitable for project design. WSP, which acquired Golder in 2021, declined to comment on client information.
The facility is crucial to Freeport’s operations in Indonesia, where the company derives significant revenue. The Indonesian government, which holds a majority stake in the Freeport subsidiary operating the Manyar complex, has previously fined the company for construction delays and tied project completion to export duty reductions.
While the SEC probe could take months or years to complete and has not resulted in any formal accusations of wrongdoing, companies found to have violated US securities rules can face substantial fines and other civil penalties. The investigation focuses on whether Freeport failed to disclose material risks that could affect investment decisions.
Freeport-McMoRan’s shares have increased more than fourfold in the past five years, supported by major institutional investors betting on rising copper demand for clean energy and electric vehicles.
Information for this story was found via Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
