February 20, 2017
Freeport-McMoRan on Monday warned the Indonesian government it was prepared to sue Jakarta if it could not resolve an increasingly bitter dispute that has slashed production at its flagship copper deposit in the country.
Richard Adkerson, chief executive of the US mining company, said Jakarta had been notified of what he characterised as violations of its contract to mine copper at the giant Grasberg deposit in the eastern province of Papua.
The two sides have 120 days to resolve the issues, which was triggered by changes to Indonesia’s mining laws — otherwise Freeport will launch arbitration proceedings.
“Right now we are at an impasse with government,” Mr Adkerson told reporters. “At the end of that period if this dispute is not resolved we reserve the right . . . to commence arbitration.”
Indonesia wants overseas mining companies to replace their current contracts with more flexible permits, and to sign up to other measures that could involve higher royalty payments to Jakarta and selling a 51 per cent stake in their assets to local owners.
Until they do, companies are not allowed to export unprocessed ore — or, in Freeport’s case, copper concentrate from Grasberg, the crown jewel in the company’s portfolio after recent asset sales.
Freeport is unwilling to agree to a new permit unless it gets the same legal and fiscal assurances as under its existing deal — a contract that has been in place for decades. It said attempts to enforce the new regulations had violated its rights.
Regulatory uncertainty and sudden policy changes are emerging as one of the biggest issues facing the mining industry. South Africa is preparing to make changes to its legislation about black ownership of natural resources companies, while the Philippines ordered the closure of more than half the country’s mines this month.
Jakarta, which wants to squeeze more money out of overseas mining companies, warned Freeport against seeking arbitration, saying it could harm the relationship between the company and the government.
“Do they want to do business or do they want to be litigants,” Indonesia’s energy and mineral resources minister Ignasius Jonan was reported by Bloomberg as saying on Monday.
Mr Adkerson said Freeport’s treatment in Indonesia was likely to be closely watched in Washington.
He added Carl Icahn, the billionaire activist investor and special adviser to Donald Trump, the US president, was concerned about the situation. Mr Icahn owns 7 per cent of Freeport, which is the world’s largest listed copper producer.
Copper, whose use in electrical wiring makes it a key global commodity, is an important source of earnings for some of the world’s largest mining companies, including Anglo American, BHP Billiton and Glencore.
The stoppage at Grasberg, combined with a strike at the world’s largest copper mine at Escondida in Chile, has driven the price of the red metal to a near two-year high above $6,000 a tonne.
Grasberg is the world’s second largest copper mine and also runs at the lowest cost because of the gold it produces. Analysts had expected the mine to deliver 800,000 tonnes of copper in 2017 — about 3.5 per cent of global supply.
More than 32,000 people are employed at Grasberg. Freeport laid off 10 per cent of its small expatriate workforce at the mine on Friday and said it will release contract workers this week.
The dispute is also threatening plans to shift production at Grasberg from an open pit to an underground mine, a multibillion-dollar project involving Freeport and its joint venture partner Rio Tinto.
Rio this month said it was thinking carefully about whether to invest because of the new Indonesian mining laws.
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