Photo by Freeport Mcmoran

JAKARTA (TheInsiderStories) –  While U.S minerFreeport-McMoRan Inc. (FCX) said it opts to stop its investment in Indonesia operation if its Indonesia’s entity, PT Freeport Indonesia (FI) failed to reach deal with the Government of Indonesia. Freeport has allocated US$700 million investing in underground mining activity this year and US$750 million for next year.

On its press statement released on Tuesday (July, 25), Freeport stated the following: “We are encouraged by recent progress in our active negotiations with the Indonesian government to resolve issues involving our contractual rights […]”. Speaking about the operating and development activities at Grasberg, the company added:
“If PT-FI (Freeport Indonesia) is unable to reach agreement with the Indonesian government on its long-term mining rights, FCX intends to reduce or defer investments significantly in its underground development projects and pursue arbitration under its COW (Contract of Work)”.
Richard C. Adkerson, President and Chief Executive Officer, said, “We remain focused on protecting our past investments and supporting our long-term investment plans at the high-grade, long-lived mineral deposits in the Grasberg minerals district in Papua, Indonesia.”
PT-FI and the Indonesian government are now engaged in active negotiations on the conversion of PT-FI’s COW to an IUPK accompanied by an investment stability agreement with the objective of providing a mutually acceptable long-term investment framework. In addition to negotiating a stability agreement, the parties are also discussing requirements for the construction of a new smelter and the government’s request for divestment.
FCX said PT-FI and the Indonesian government are working cooperatively with the objective of reaching a mutually acceptable long-term resolution during 2017 to secure PT-FI’s long-term investments for the benefit of all stakeholders.
Teguh Pamudji, head of negotiation team who also acts as general secretary at ESDM Ministry told reporters on Monday (July 24) that the Ministry of Energy and Mineral Resources (MEMR) has reached agreement with FCX for further operation its Indonesian unit. The agreement comprises of the smelter development completed before Jan, 2022 and the contract extension until 2031.
Freeport has proposed to get 20 years extension of contract, but the ministry agreed the extension is made by gradually, then 10 years extension could be offered for two stages. “They (Freeport) can extend their IUPK (special mining license permit), from previously set to expired in 2021, to 2031.”
But, Pamudji noted, that there are two points on which Freeport have not agreed yet; the stability of investment relating to tax issue and the obligation for divestment. Freeport proposed for a nail down tax scheme while the government asks Freeport to pay tax through prevailing scheme. The government also urges Freeport to divest 51 percent shares as Freeport has been operating in Indonesia for more than 10 years.
Pamudji told the press briefing on Wednesday (July 26) that the legitimacy of operation after 2031 would be there when the IUPK is signed. Government of Indonesia and Freeport have agreed on the exclusive IUPK. The said contract is still honored (as ruled on PP/2017), so Freeport has right to propose further 20 years extension, two times extension (10 years each), when the contract expired in 2021.
Freeport, Pamudji said, has also agreed to build smelter and finish construction within 5 years, then Freeport could gain export license for concentrate by paying customs exit. While on divestment issue, the discussion is still underway. The Government of Indonesia is eager to hold 51% Freeport shares. Currently, Indonesian government holds 9.36% only. For divestment, Freeport will issue new shares with the price will be set by the independent appraiser or valuator.
Shares of FCX jumped nearly 15% on Wednesday in New York as investors responded positively the Company’s performance in the second quarter, when it posted net profit of $241 million or $0.17 per share. The Company however is pending resolution of FI’s long-term operating rights.
Overall, FCX was boosted by higher average price of cooper and higher volume of gold sales in the quarter. Copper sales volume slipped to 942 million pounds, but average price improved 21% to US$2.65 per pound in the quarter. Average gold price slipped to US$1243/Oz, but sales volume nearly tripled to 432,000 ounces.

Offers 10% Through IPO

Followed the government law, Freeport-McMoRan mulls to sell 10 percent shares of its Indonesian subsidiary FI, reducing its stake from current 81.28 percent for adding Indonesian interest. The Government of Indonesia is seeking to achieve 51 percent ownership in FI, while Freeport earlier agreed for only 30% Indonesian interest.

Beside FCX, the other FI’s shareholders are Government of Indonesia 9.36 percent and PT Indocopper Investama 9.36 percent. Richard told the press in New York, that listing a stake in FI on the Indonesian Stock Exchange (IDX) would be the preferred way to divest a portion of its interest, as required by the government.
“We are suggesting to the government that the optimal way for us to proceed with divestment would be to start with a listing (on IDX). And that listing would probably be on the order of a 10 percent interest,” he said.
Shares of FCX jumped nearly 15 percent on July 26 in New York as investors responded positively the Company’s performance in the second quarter, when it posted net profit of $241 million or US$0.17 per share. The Company however is pending resolution of FI’s long-term operating rights.
Overall, FCX was boosted by higher average price of cooper and higher volume of gold sales in the quarter. Copper sales volume slipped to 942 million pounds, but average price improved 21 percent to $2.65 per pound in the quarter. Average gold price slipped to $1243/Oz, but sales volume nearly tripled to 432,000 ounces.
FCX said it opts to stop its investment in Indonesia operation if its Indonesia’s entity, PT Freeport Indonesia failed to reach deal with the Government of Indonesia. Freeport has allocated $700 million investing in underground mining activity this year and $750 million for next year.
“If PT-FI (Freeport Indonesia) is unable to reach agreement with the Indonesian government on its long-term mining rights, FCX intends to reduce or defer investments significantly in its underground development projects and pursue arbitration under its COW (Contract of Work)”.
Richard C. Adkerson said, “We remain focused on protecting our past investments and supporting our long-term investment plans at the high-grade, long-lived mineral deposits in the Grasberg minerals district in Papua, Indonesia.”
  

Freeport-McMoRan reported, the net income attributable to common stock totaled $268 million, $0.18 per share, for second-quarter 2017. After adjusting for net gains of $27 million, $0.01 per share, second-quarter 2017 adjusted net income attributable to common stock totaled $241 million,$0.17 per share.

Consolidated sales totaled 942 million pounds of copper, 432 thousand ounces of gold and 25 million pounds of molybdenum for second-quarter 2017. While, consolidated sales for the year 2017 are expected to approximate 3.7 billion pounds of copper, 1.6 million ounces of gold and 93 million pounds of molybdenum, including 940 million pounds of copper, 375 thousand ounces of gold and 22 million pounds of molybdenum for third-quarter 2017.

Average realized prices were $2.65 per pound for copper, $1,243 per ounce for gold and $9.58 per pound for molybdenum for second-quarter 2017. And, average unit net cash costs were $1.20 per pound of copper for second-quarter 2017 and are expected to average $1.19 per pound of copper for the year 2017.

Operating cash flows totaled $1.0 billion (including $144 million in working capital sources and changes in tax payments) for second-quarter 2017 and $1.8 billion (including $322 million in working capital sources and changes in tax payments) for the first six months of 2017.

Based on current sales volume and cost estimates, and assuming average prices of $2.65 per pound for copper, $1,250 per ounce for gold and $7.50 per pound for molybdenum for the second half of 2017, operating cash flows for the year 2017 are expected to approximate $3.8 billion (including $0.6 billion in working capital sources and changes in tax payments).

Capital expenditures totaled $362 million (including approximately $210 million for major mining projects) for second-quarter 2017 and $706 million for the first six months of 2017 (including approximately $420 million for major mining projects). Capital expenditures for the year 2017 are expected to approximate $1.6 billion, including $0.7 billion for underground development activities in the Grasberg minerals district in Indonesia, which depends on a resolution of FI long-term operating rights.

At June 30, 2017, consolidated cash totaled $4.7 billion and consolidated debt totaled $15.4 billion, compared with $4.2 billionof consolidated cash and $16.0 billion of consolidated debt at December 31, 2016. FCX had no borrowings and $3.5 billion available under its revolving credit facility at June 30, 2017.

(Written by Linda Silaen, Email: linda.silaen@theinsiderstories.com)

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