CEO Freeport Mcmoran Richard Adkerson with Indonesian ministers in one meeting - Photo by TheInsiderStories

JAKARTA (TheInsider Stories) – Indonesia’s plan to implement new environmental standards later this month is likely to hurt US mining giant Freeport-McMoRan‘s ((NYSE: FCX) operations deeply, and this pose threats to ongoing divestment talks with the government, said the president and CEO in a statement on Tuesday (24/04).

Its unit, PT Freeport Indonesia (PTFI) continues to engage with PT Indonesia Asahan Aluminium (Inalum) on the potential arrangements that would result in the state-owned miner acquiring Indonesian government’s 51 percent ownership goal.

It said, the parties continue to negotiate documentation on a comprehensive agreement for PTFI’s extended operations and to reach agreement on timing, process and governance matters relating to the divestment.

Richard Adkerson said, PTFI is also engaged in discussions with Indonesia’s Ministry of Environment and Forestry regarding approval of pending environmental permits and ministerial actions imposing new environmental standards, which are subject to a six-month transition period and conflict with the company’s approved environmental management programs.

Resolution of these matters is a requirement for concluding a comprehensive agreement for PTFI’s extended operations. The Phoenix-based miner was caught by surprise by “shocking and disappointing” demand from the ministry as it wants to change the way the company manages the disposal of mine waste, or tailings, at Grasberg, the world’s second-biggest copper mine.

The ministry’s planned new system, which is subject to a six-month transition period, will replace the 20-year old system that has been in place. Adkerson said that no miner could mine such ore if such demand is enforced.

With the Arizona-based company is facing new threats to its operation, it is likely that the tricky and ongoing negotiations with Indonesia to secure long-term operating rights at Grasberg, is getting tougher. Indonesia released new rules last year that isaimed at giving it greater control of its resources.

However, the future of the mining giant is uncertain. Indonesian government has been sticking to its gun to insisting Freeport sell some of its local unit PTFI to local buyers as part of a deal to allow U.S mining giant to keep operating in the country.

Negotiations have dragged on for years, and things got complicated by production rights held by Rio Tinto Group which, if it is sold, could reduce the proportion of share that Freeport has to divest in order to meet Indonesia’s demand to have local ownership to 51 percent.

While the talks are ongoing, Freeport Indonesia has been operating under temporary mining licenses; with existing licenses to expire June 30. Meanwhile, the miner’s latest export license expires in February 2019.

In December 2017, the Indonesian government extended PTFI’s temporary permit to June 30, 2018, to enable normal operations to continue during the negotiation period. In February 2018, PTFI’s export license was extended to February 15, 2019.

Until a definitive agreement is reached, PTFI has reserved all rights under its Contract of Work (COW), including dispute resolution procedures.

PTFI is currently mining the final phase of the Grasberg open pit, which contains high copper and gold ore grades. The local miner expects to mine high-grade ore until transitioning to the Grasberg Block Cave underground mine in the first half of 2019.

Subject to reaching a definitive agreement with the Indonesian government to support PTFI’s long-term investment plans, estimated annual capital spending on these projects would average $800 million per year over the next five years.

Adkerson stated, in response to market conditions and Indonesian regulatory uncertainty, the timing of these expenditures continues to be reviewed. If PTFI is unable to reach a definitive 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 will pursue dispute resolution procedures under its COW.

In late 2017, the Indonesian government (including the regional government of Papua Province and Mimika Regency) and Inalum, which leads the Indonesian government’s consortium of investors, formed a special purpose company to acquire Grasberg project area interests.

Inalum is owned 100 percent by the Indonesian government and currently holds 9.36 percent of PT-FI’s outstanding common stock.

Email: linda.silaen@theinsiderstories.com

LEAVE A REPLY

Please enter your comment!
Please enter your name here