Freeport Indonesia president director Tony Wenas points at the construction site of the company's new smelter in Gresik, East Java. (B1 Photo/Primus Dorimulu)

Freeport Confident of Meeting 2023 Smelter Target After Securing $3b Loan Commitment

BY :PRIMUS DORIMULU

AUGUST 26, 2019

Surabaya. Freeport Indonesia, the country's largest gold and copper miner, has secured a $3 billion financing commitment from 11 local and foreign banks, putting it a step closer to completing a critical smelter by 2023. 

The company must complete the smelter to fulfill its part of the deal with the government to extend operations at its Grasberg mine in Papua until 2041.

"Freeport has obtained loan commitments from 11 banks and this is the first loan since the company started operating," Freeport Indonesia president director Tony Wenas told BeritaSatu over the weekend. He added that three of the lenders are domestic banks. 

Freeport Indonesia is currently building a smelter in the Java Integrated Industrial and Ports Estate in Gresik, East Java. It has invested $150 million of its own funds in feasibility studies, engineering services, environmental impact analyses, rental fees and soil maturation for site preparation. 

The miner switched its contract of work agreement to a special mining business permit last year after intense negotiations, which saw the Indonesian government becoming the company's majority owner.

The special mining business permit does not allow Freeport Indonesia to export copper concentrate and requires it to build a domestic smelter and establish a mineral refining and processing company within five years of the permit's issuance.

"We believe the construction of the smelter can be completed on time and that it will be operational by December 2023," Tony said.

Capacity

Freeport Indonesia currently produces about 3 million metric tons of concentrate annually, 1 million of which is now processed by Smelting, a joint venture with Japan's Mitsubishi in Gresik. 

Smelting president director Hiroshi Kondo said the company processes about 1.1 million tons of copper concentrate annually, with 100,000 tons of it coming from Amman Mineral, a mining subsidiary of Medco Energy Indonesia in West Nusa Tenggara.

Smelting produces 291,000 tons of copper cathode annually, with byproducts including 1.04 million tons of sulfuric acid, which is used to make fertilizer; 805,000 tons of copper slag, used in the cement industry; 31,000 tons of gypsum, a building material; and 2,000 tons of anode sludge; which contains gold, silver and other precious metals.

State-owned Petrokimia Gresik takes the sulfuric acid from Smelting, while several cement manufacturers process the copper slag.

But Kondo said Smelting only paid out dividends in the past three years, after 23 years of operations, as local market absorption is less than expected. 

"One of our considerations in smelter investment in Indonesia is the large Indonesian market. It turns out, most of the cathode must be exported because of the small absorption capacity in the domestic industry," Kondo said. 

Smelting's cathode is exported to Malaysia, Thailand and Vietnam, where it competes with cheaper products from other suppliers. 

Tony said Freeport expects its new smelter to face similar challenges. "But this is our commitment," he said. 

Tony added that Freeport's smelter plant would produce about 550,000 tons of copper annually and enough anode sludge to allow a third party to produce between 30 and 60 tons of gold and 120 tons of silver per year.

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