Trouble between the Government & Freeport Indonesia Resumes
There is still the possibility that Freeport Indonesia, subsidiary of US-based natural resources company Freeport McMoRan Copper & Gold Inc, will not be allowed to continue exporting copper concentrate. The existing export permit expires on Thursday (28/01) and the Indonesian government is seemingly unwilling to renew the 6-month permit as Freeport has still not send the USD $530 million deposit for the development of a new smelter. Freeport, on the other hand, says this deposit is not in line with existing agreements.
Problems between both sides started when the Indonesian government unveiled Law No. 4/2009 on Mineral and Coal Mining (New Mining Law) in early 2009. This new law - which was a big break with existing contracts - ordered the mandatory renegotiation of existing contracts. For miners such as Freeport Indonesia and Newmont Nusa Tenggara the New Mining Law was a major setback as it banned exports of raw materials (in an effort to boost the country's downstream processing facilities hence generating more revenue from its natural resources).
The ban on mineral ore exports was supposed to be implemented in full force in January 2014. However, the Indonesian government allowed the resumption of mineral ore exports provided the miner showed evidence that it was committed to the construction of smelting facilities (for example by providing a money deposit for the establishment of the smelter). Miners were also forced to pay higher taxes and royalties for the resumption of exports. By showing evidence of the progress of smelter development, the government would renew six-month export permits until 2017 when the full ban on export of raw mineral ore is expected to be implemented.
Freeport Indonesia requested the government to renew the six-month permit (which is set to expire on Thursday 28 January 2016) to export around 1 million tons over the next six months. A stop to copper concentrate exports would not only hurt the company's corporate earnings but would also hurt the government as Freeport Indonesia is the largest taxpayer to the government.
Up to early 2016, Freeport Indonesia said it has provided a deposit of USD $168 million, while the new smelting facilities have been completed for 14 percent. However, Freeport claims that the new demand from Indonesian authorities (the USD $530 million deposit that is requested before a new six-month export permit is allowed) is not in line with an agreement reached in mid-2014. Freeport CEO Richard Adkerson said the agreements made in mid-2014 required Freeport to offer the government a greater share of the Grasberg copper and gold mine (complying with the mandatory share divestment in accordance to the New Mining Law) and invest in domestic processing facilities to obtain an extension of its contract beyond 2021. Not for the extension of the temporary export permit.
Freeport Indonesia's contract to operate the Grasberg Mine (the world’s largest gold mine and third-largest copper mine) will expire in 2021 and although an agreement made in the 1990s allows Freeport to extend the contract by another 20 years, the mining company would like to have certainty from the current government as it needs to invest heavily in underground mining activities at the Grasberg Mine.