Shipments from Freeport-McMoRan’s Grasberg mine in Indonesia were scheduled to resume in August after the company
and the government agreed to work toward formulation of an amended Contract of Work for Freeport’s subsidiary PT
Freeport Indonesia. (Photo courtesy of PT-FI)

PT-FI’s Grasberg operations are among the largest copper and gold producing operations in the world. Sales in 2013 totaled 885 million lb of copper and 1.1 million oz of gold in concentrates. The Grasberg operations continued to produce at about half their rated capacity during the first half of 2014 and continued to ship concentrates to the Gresik copper smelter in Indonesia. The Gresik smelter does not have capacity to handle all of PT-FI’s production.

Following the new approval for export of concentrates, PT-FI resumed full operations at the end of July, and concentrate exports were scheduled to resume in August.

The approval for the resumption of concentrate exports was based on a Memorandum of Understanding (MoU) between the government and PT-FI whereby the parties agreed to negotiate an amended Contract of Work (CoW) to be completed within six months to address provisions related to the size of PT-FI’s concession area, royalties and taxes, domestic processing and refining, divestment, local content, and continuation of operations post-2021.

Effective with the signing of the MoU, PT-FI agreed to pay export duties set forth in a new regulation issued in July, to provide a $115 million assurance bond to support its commitment to smelter development, and to increase royalties to 4% for copper and 3.75% for gold from previous rates of 3.5% for copper and 1% for gold.

Effective July 25, the government revised its January regulations regarding export duties to incorporate reduced rates for copper concentrate exports for companies engaged in smelter development. The revised regulations provide for duties on copper concentrate exports during smelter development initially at 7.5%, declining to 5% when development progress exceeds 7.5% and 0% when development progress exceeds 30%.

Among other items, MoU provisions to be addressed in the negotiation of the amended CoW include provisions for the development of new copper smelting and refining capacity in Indonesia that will take into consideration an equitable sharing of costs between PT-FI (and any partners in the project) and the government through fiscal incentives, provisions for Freeport-McMoRan to divest to the government and/or Indonesian nationals up to a 30% interest (an additional 20.64% interest) in PT-FI at fair value, and continuation of operations from 2022-2041. Negotiations will take into consideration PT-FI’s need for assurance of legal and fiscal terms post-2021 for PT-FI to continue with its large-scale investment program for the development of its reserves.

Still Looking for Batu Hijau Solution: PT Newmont Nusa Tenggara (PTNNT) has copper-gold mining operations on Sumbawa Island, Indonesia. Production in 2013 totaled 78 million lb of copper and 23,000 oz of gold in concentrates. Newmont Mining is 31.5% owner of PTNNT and is the project operator.

Batu Hijau was hit with the same concentrate export ban that hit PT-FI in January. The mine continued to operate at capacity through early June, when operations were suspended after it ran out of concentrate storage capacity (E&MJ, July 2014, p. 20).

On July 1, PTNNT filed for international arbitration against the government of Indonesia to seek relief from the export ban, saying the ban violates its CoW. The government responded by saying it might terminate the CoW and turn the mine over to a state-owned firm.

As of July 25, the stand-off between PTNNT and the government had not been resolved; however, news reports indicated talks were ongoing and that the PT-FI agreement reported above might point a way toward a resolution of the dispute and resumption of operations by PTNNT.