- Freeport’s Grasberg mine in Indonesia didn’t get renewal
- Government has asked for $530 million deposit toward smelter
Freeport-McMoRan Inc. said one of the world’s biggest copper and gold mines continues to operate normally after its export license expired without an extension being granted by the Indonesian government.
Mining and milling operations remain normal at the Grasberg deposit in Papua province, Riza Pratama, a spokesman for PT Freeport Indonesia, the company’s local unit, said by text message on Friday. Grasberg’s copper capacity is second only to Escondida in Chile, according to the International Copper Study Group. It has the single largest gold reserves in the world, according to the company’s website.
Indonesia is renegotiating mining contracts with foreign companies, arguing that too much of the nation’s mineral wealth is disappearing overseas. The government has banned the export of metal ores to encourage the construction of domestic processing.
Grasberg’s export permit, granted every six months, is necessary for Freeport to ship concentrates from the mine. It expired Thursday and is unlikely to be renewed on Friday because the company hasn’t met the government’s requirements, Bambang Gatot Ariyono, director general of minerals and coal at the Energy & Mineral Resources Ministry, told reporters. Talks are ongoing and the company is confident it will renew the permit, Freeport said earlier.
Indonesia has asked for a $530 million deposit on a new smelter in return for renewing the permit to ship 1 million metric tons over the next six months. Freeport Chief Executive Officer Richard Adkerson this week said that request was inconsistent with the company’s previous understanding with the government.
The Phoenix-based producer is struggling to contend with a historic collapse in metals prices. Moody’s Investors Service lowered its credit rating four levels to junk on Wednesday, while Adkerson has said he would consider selling any operation, in full or in part, to weather the slump.
Energy and Mineral Resources Minister Sudirman Said told reporters on Wednesday that the government’s priority was to ensure operations continue so that the local economy is unaffected. He said the deposit would be proof of Freeport’s commitment to the smelter.
Freeport, which mined $1.7 billion of copper and $1.4 billion of gold in 2015 from Grasberg, also wants to extend its contract to operate in Indonesia. That expires in 2021, and the company has agreed to sell shares as part of the negotiation. An Indonesian official said this month that Freeport had offered the government an 11 percent stake in its local unit for $1.7 billion. Freeport has confirmed an offer was made though it didn’t give details.
Handing over $530 million would undermine the CEO’s efforts to shore up the company’s balance sheet amid the worst commodities rout in a generation, which has led to five straight quarters of losses and a 75 percent share price plunge in the past year. For Indonesia, a halt at the giant Grasberg mine would costs jobs and tax revenue.
Indonesia will contribute 29 percent of Freeport’s copper sales this year, up from 18% in 2015, as the company plans to double sales from Grasberg to 1.48 billion pounds in 2016 from 744 million pounds last year, the company said in a presentation this week.
Operations at Grasberg, in the mountains of Papua, have been plagued by labor strife in recent years. Workers seeking higher wages took strike action in 2011 and the mine was closed for months following a tunnel collapse in 2013 that killed 28 people. Exports were disrupted in 2014 after a dispute with the Indonesian government over export duties.
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