Indonesia Seeks to Assure Freeport of Mining Contract
Jakarta. The government is undertaking efforts to conclude the renegotiation of Freeport Indonesia’s contract of works before July this year, as it seeks to provide the mining company with certainty before it invests billions of dollars in underground mining projects, a minister said last week.
“Whoever wishes to invest $17.3 billion needs assurances. That’s why we hope that we can announce the decision before July 2015,” Energy and Mineral Resources Minister Sudirman Said said in Jakarta on Friday.
Freeport Indonesia, the local unit of US mining giant Freeport-McMoRan, has been in talks with the government to amend its contract of work and to extend its mining operation beyond 2021.
Renegotiations include the company’s value-added obligation; contractual period; size of operation; local-content obligation; government revenue, and divestment.
The toughest point so far had been the value-added obligation, which translated into a demand that the miner should build a smelter in Indonesia.
The government has demanded that all miners, including Freeport Indonesia, must build smelters to add value to the nation’s natural resources.
In the aftermath of Indonesia’s half-hearted implementation of a mineral ore export ban in January last year, all miners, including Freeport Indonesia, had to renew their permits to export copper concentrate every six months.
Freeport has secured an extension of its export permit for six months in January, after it showed its commitment to building a smelter in-country by signing a land lease in East Java.
That means that the miner will be free to export copper concentrate from its Grasberg mine in Papua for the next six months.
“After the six points of renegotiation are completed ... then we can sign the new contract,” Sudirman said.
Freeport, which runs the world’s fifth-biggest copper mine in Indonesia, already agreed to a $2.3-billion copper smelter in East Java as it prepares to spend $15 billion for the expansion of its mining operations this year.
The Arizona-based miner wants its Indonesian unit to change to with underground mining from previously open-pit mining to access more copper and gold from the Grasberg mountain in Papua.
Freeport Indonesia’s previous chief, Rozik B. Soetjipto, told GlobeAsia in 2012 that the company was in a race ahead of the 2017 depletion of surface resources at its Papua mining site.
However, the minister said, extending the contract means the government must change its regulation. Regulation No. 77 of 2014 about the implementation of mineral and coal states that holders of contracts of works can only submit a request to the ministry at the soonest two years before such contract expires. Freeport’s contract will only expire in 2021.
The miner signed its first contract for Grasberg in 1967.
But Said Didu, a member of the national smelter development team at the Energy and Mineral Resources Ministry, said that certainty over Freeport’s contract extension was necessary because 70 percent of the miner’s earmarked investment in underground mining was ready to be disbursed as part of the mine’s first development.
“When the underground access is done, but the contract cannot be extended, it will be a difficult situation [for the company],” said Didu, a former secretary at the State-Owned Enterprises Ministry.
“It can take up to 10 years [to build the necessary infrastructure] to access the ore underground,” he said.
Investor Daily
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