Indonesia blocks Freeport copper exports from Papua in deadlock

Freeport McMoRan's Grasberg mine in West Papua. Image:


Freeport McMoRan Inc has lost its right to export copper concentrate, valued at more than $1 billion, from one of the world’s biggest mines as talks with Indonesia’s government remained deadlocked over payment for a new metal smelter.

Freeport’s six-month licence to export concentrate expired last Thursday and it was unclear how soon a new one would be issued as the two sides have yet to resolve a government demand that the US firm first pay a $530 million deposit, reports Reuter.

“Without an export permit, there can be no exports. The exporter knows that,” Didi Sumedi, Indonesia’s director of mining and industrial products said via text message.

However, it was not clear if exports had actually stopped at Freeport’s Grasberg mine in the province of Papua, one of the world’s largest copper and gold mines.

Asked if overseas shipments had ceased, a Freeport spokesman said “everything is normal”, without elaborating.

Last year, Freeport sold 744 million pounds of copper concentrate from Grasberg, valued at around $1.73 billion, according to the company’s fourth-quarter financial results.

Prolonged stoppage
A prolonged stoppage in exports would hit Freeport’s profits and deny the Indonesian government desperately needed revenue from one of its biggest taxpayers. It could also buoy global copper prices, which have slipped more than 3 percent so far this year on worries about oversupply.

But in the short-term, traders do not expect any major market reaction.

“If it lasts a couple of months, sure we may see an impact. But with the new mines and mine expansions this year, the market is fairly well covered at the minute,” said a concentrates trader in Asia.

Indonesia has said it was open to negotiations with Freeport on the $530-million deposit and that if the company did not want to pay, it must provide an alternative to demonstrate its commitment to expanding the country’s smelter capacity.

Indonesia wants the deposit as a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter. The amount would add to an estimated $80 million that Freeport set aside in July 2015 to obtain its current export permit.

Freeport CEO Richard Adkerson said late on Tuesday the government’s demand for a smelter deposit was “inconsistent” with an agreement reached between the two sides in mid-2014.

Greater share
According to that agreement, Freeport must sell the government a greater share of the Grasberg mine, and invest in domestic processing to win an extension of its mining contract beyond 2021.

The US mining giant wants to invest $18 billion to expand its operations at Grasberg, but is seeking government assurances first that it will get a contract extension.

Freeport’s long-held desire to continue mining in Indonesia beyond 2021 has been beset by controversy, including cabinet infighting, resignations and a major political scandal that led to the resignation of the parliamentary speaker.

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