A stand-off between Freeport-McMoRan Inc and Indonesia continued on Friday as the government announced it granted the company a new mining licence – and Freeport said it won’t accept it without more certainty.
The company’s unit, PT Freeport Indonesia, will only convert to a special mining licence, or IUPK, if it also receives a “stability agreement” that offers “the same level of fiscal and legal certainty” contained in its current so-called Contract of Work, Freeport spokesman Eric Kinneberg said Friday by an e-mailed statement.
“These conditions are necessary and critical for PTFI’s long-term investment plans,” Kinneberg said in the statement. “PTFI will continue to work with the government to reach a mutually satisfactory agreement. To date, there is no agreement. Exports remain restricted as a result of the January 2017 regulations, which contravene PTFI’s rights under its legally binding contract with the government.”
Earlier Friday, Bambang Gatot Ariyono, director-general of coal and mineral at the Energy and Mineral Resources Ministry, told reporters in Jakarta that an IUPK had been granted to Freeport and is valid until 2021. He said PTFI can now apply for an export permit to resume concentrate shipments from its Grasberg mine.
In January, Indonesia said that Phoenix-based Freeport, the world’s largest publicly traded copper producer, would need the special mining licence in order to export. During the company’s fourth-quarter earnings call, Freeport chief executive officer Richard Adkerson made clear this would not be acceptable without a stability pact.
The government had also demanded that foreign miners that export divest 51% of their stakes to local owners by their 10th year of operation, something Adkerson says isn’t required under its Contract of Work. Had Freeport known this demand would be made when it negotiated its original contract with the government “we would not have invested the way we did,” he said during the earnings call.
The government ban on exports of semi-processed copper from Grasberg has caused stockpiles to build up. Earlier this week, PTFI told employees that it was preparing to reduce output to 40% at the Indonesian mine as it neared its storage capacity. “You just don’t have a clear path to both sides getting what they want,” Matthew Korn, a Barclays Plc analyst, said by phone from New York. Because Freeport’s long-term Contract of Work expires in 2021 and it’s currently not allowed to export, “the main piece of leverage on the government’s side is time,” Korn said. Meanwhile, Freeport’s main leverage is the possibility that it will shut down operations. “It looks as though we’re likely to get to that kind of point.”
Copper for three-month delivery was 4.6% higher at $6,090 a metric tonne on the London Metal Exchange. The metal has risen 37% in the past year. Freeport’s Grasberg mining complex in Indonesia is the world’s largest mine in terms of copper capacity after Escondida in Chile, according to the International Copper Study Group, while Freeport says Grasberg has the single biggest reserves of gold. Supply from the deposit is of particular importance to global copper markets given the current strike at BHP Billiton Ltd’s Escondida.