Indonesia Allows Exports From Freeport Mine in Stop-Gap Deal

By: | at 06:56 AM | Breakbulk & Projects  

Indonesia has issued a temporary mining license to Freeport-McMoRan Inc.’s local unit that will allow the company to resume concentrate exports from the world’s second-largest copper mine at Grasberg after a gap of about 12 weeks.

The permit is valid for eight months from the time that the producer was first offered a special mining license or IUPK in February, Teguh Pamudji, secretary-general at Indonesia’s Energy and Mineral Resources Ministry, told reporters in Jakarta on Tuesday. The government will continue talks with Freeport on a long-term financial stability pact, he said.

The mining company expects to resume exports soon and will continue discussions with the government on other issues, spokesman Riza Pratama, said in a text message before the announcement. The producer will be able to switch back to its Contract of Work from the temporary mining license if a long-term deal is not reached by Oct. 10, but its right to export would be rescinded, Pamudji said.

“We have agreed with Freeport to sit down and discuss the short-term and long-term approach,” Pamudji said. “For the short-term, the continuity is important as Freeport Indonesia has a large impact on Papua, so last week we agreed to release a temporary license. With that, Freeport can export concentrates and pay duties. There’s also an agreement to start talks next week on the long-term approach.”

The two sides have been entangled in a dispute over the company’s contract, including a requirement to divest a majority stake to domestic shareholders and the ability to export. While prices were buoyed this year by the halt in shipments and a strike at the world’s biggest mine at Escondida in Chile, they’ve dropped more than 7 percent from February highs as disruptions eased.

Interim Deal

Freeport can restart exports based on a recommendation in February which allowed the company to ship 1.1 million metric tons of concentrates over a period of 12 months, Bambang Gatot Ariyono, director-general of coal and minerals at Energy and Mineral Resources Ministry, told reporters in Jakarta on Tuesday.

The interim deal could allow Freeport to restore operations at the Grasberg mine in Papua to full capacity. The company has vowed to hold out for investment safeguards before agreeing to a conversion of its Contract of Work into a long-term IUPK. The miner currently operates the mine at about 40 percent to feed a smelter in Gresik on Java island.

Under new rules announced in January, Indonesia said companies that want to export semi-processed metals including concentrate must convert their Contract of Work to a special mining license, build smelters and add local investors. Freeport declined to switch to the new system, insisting on the investment guarantees, and its exports have been halted since the middle of January.

Mine Supply

The rules stipulate foreign miners must begin selling shares to local entities five years after starting production and must reach 51 percent of local ownership by the 10th year. Freeport should immediately divest its stake after conversion, because the firm has been mining in the country for more than a decade, Deputy Energy and Mineral Resources Minister Arcandra Tahar said in January. At present, Indonesia holds 9.36 percent of the Freeport unit.

Copper dropped as much as 0.4 percent to $5,730 a ton on the London Metal Exchange after the news Tuesday, before recovering to $5,766 by 11:39 a.m. in London. Citigroup Inc. said last week that global mine supply will probably shrink this year for the first time in more than a decade because of a wave of disruptions from strikes, government disputes and bad weather. Intraday prices reached $6,204 in February, the highest since May 2015.


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