Indonesia Dials Down Heat in Freeport Talks as Temporary Deal Looms i

Indonesia is trying a new approach to ease a deadlock over mining rights, promising to allow Freeport McMoRan to resume concentrate exports from its Grasberg mine, the world's second-biggest copper mine. (B1 Photo)

By : Wilda Asmarini | on 9:25 PM April 05, 2017
Category : Business, Corporate News

Jakarta. Indonesia is trying a new approach to ease a deadlock over mining rights, promising to allow Freeport McMoRan to resume concentrate exports from its Grasberg mine, the world's second-biggest copper mine.

Indonesia and Freeport have sparred over rights to mine Grasberg, new taxes, royalties and divestment rules, as well as stipulations that the US miner build a second smelter, moves Indonesia hopes will increase its returns from the sector.

The impasse has halted Grasberg's concentrate exports for 12 weeks, since Indonesia first announced the new rules.

But after both sides initially dug in, the tone has shifted markedly in recent weeks. Indonesia's Secretary General for the Energy Ministry, Teguh Pamuji, announced on Tuesday (04/04) that Freeport would receive a temporary "special mining permit" in a plan to allow Freeport's operations to continue and exports to resume while discussions on longer-term issues continued.

The change has boosted Freeport's shares on Wall Street, but some analysts have questioned the legal basis of the temporary permit and said the two sides may be kicking the can down the road.

With the temporary permit, and provided it commits to building a second smelter, "Freeport can export concentrate and pay an export duty," Teguh told reporters. The permit will be valid for the next six months, during which the two sides will aim to finalize agreements on investment stability, divestment and domestic smelting, among other issues, Teguh said.

Freeport's shares rose 2 percent to $13.54 in New York.

"A resumption of exports would be a significant positive for Freeport in the near-term and would make us more optimistic about an eventual agreement over the more difficult longer-term issues," Jefferies analyst Chris LaFemina said in a client note.

Indonesia stopped miners from exporting mineral concentrates on Jan. 12 under the rules that required Freeport to adopt a new mining permit before resuming shipments.

Freeport has insisted that any new permit must have the same fiscal and legal guarantees as those in its 30-year mining contract, and warned if the matter was not resolved by June 17 it could go to arbitration.

"Smoke and Mirrors"

The dispute has fanned nationalist fervor in Indonesia with newspaper headlines calling for Freeport to be "kicked out of Papua," where Grasberg is located. In January, Mining Minister Ignasius Jonan said "we do not negotiate" and that Freeport should follow regulations.

As tensions escalated, Freeport Chief Executive Richard Adkerson said Indonesian ministers had been "aggressive" and that the new regulations were "in effect a form of expropriation".

US Vice President Mike Pence is due to visit Jakarta this month and the Grasberg dispute is expected to be raised. Indonesian Vice President Jusuf Kalla said last week in an interview there was no political pressure and that this was "normal" in business, but warned Washington against politicizing the Freeport issues.

"The important thing is that Freeport's immediate operations will be extended," he said.

Jakarta-based foreign legal counsel Bill Sullivan described the government approach as a "smoke and mirrors strategy", on the one hand appearing to retain a tough stance on miners for a domestic audience, while being careful to allow them enough room to continue commercial operations.

An earlier recommendation for Freeport to export up to 1.1 million tonnes of concentrate until February 2018 would still apply, but the company still needs an export permit from the Trade Ministry, said Director General of Coal and Minerals Bambang Gatot at the briefing with Teguh.

A spokesman for Freeport Indonesia said on Tuesday the company was in the process of finalizing its application for an export permit "so that exports can resume immediately".

Additional reporting by Fergus Jensen and Kanupriya Kapoor in Jakarta and Nicole Mordant in Vancouver

Reuters

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