Govt Expects to Wrap Up Freeport Negotiation in October
May 30, 2017- The government expects its negotiation with Freeport McMoran over a contract dispute — which has caused the US mining giant to trim down operations in its Grasberg mine in Papua — to start delivering results in October, the government's head negotiator said last week.
The government kicked off negotiations with Freeport, which operates in Indonesia through its local arm Freeport Indonesia, on May 4. On the table were several unresolved issues, including legal certainty for the miner's planned $17 billion investment beyond 2021 — when its existing contract expires, tax rates, the government's requirement for the US mining giant to divert a 51 percent stake in its local unit and another requirement for the company to build a smelter in the country to add value to its gold and copper ores.
Freeport's Grasberg mine in Papua is one of the biggest gold mines and the second largest copper mine in the world. The miner needs to convert the existing contract it has had since 1967 to operate it into a special mining permit which will give the company fewer privileges.
Teguh Pamudi, the secretary general of the Ministry of Energy and Mineral Resources and the leader of the government's negotiating team, said discussions with Freeport Indonesia are still ongoing and the government expects to see some compromises in October before it seals Freeport's fate.
Freeport resumed its copper concentrate exports from Grasberg in April after a 15-week outage caused by the dispute. The company had just started to ramp up production — which was cut by around two-thirds during the outage — before it was struck by escalating labor tensions that have affected its mining and milling operations.
Freeport plans to sink $17 billion in investment to transition the Grasberg complex from an open pit into an underground mining operation starting in late 2017. "Investment certainty is what we need," Freeport Indonesia spokesman Riza Pratama said, adding that production peak from the underground mine is expected to happen in 2022.
Meanwhile, fulfilling the government's request to develop a second smelter in the country may take four to five years, which means the company needs certainty that it can secure contract extension beyond 2021.