Indonesia stands firm as Freeport mine threatens to cut production

The Indonesian government seems set to ignore threats by United States mining giant Freeport-McMoran Inc to cut production at its Papuan copper mine – the world’s second-largest — and slash its local workforce if it does not receive a permit to continue exporting copper concentrates by the middle of the month, the Jakarta Post reports.

While ministers are rushing to revise the regulations so miners that have committed to build smelters can continue to export ore concentrates, an intermediate product used to make copper, there is no guarantee that the deadline will be met.

The rules as they stand now only permit shipments of refined metal after January 11, Bloomberg reported.

Richard Adkerson, chief executive officer of Freeport-McMoRan Inc., the owner of the massive Grasberg mine in Papua province, said he was confident the issue would be resolved.

He told a conference in the US last week that without a resolution the company would have to cut back operations and potentially curb development of the underground mine where it was spending US$1 billion a year.

CRU Group, a consultancy, says the regulations will be changed.

“CRU’s view is that the rules will be revised and Freeport McMoRan will be able to continue to export Grasberg concentrates,” said Christine Meilton, principal consultant, copper supply and raw materials.

Disruption forecast
“Our base case forecast assumes that any disruption does not continue long enough to result in a cutback in production.”

Grasberg is the world’s largest mine in terms of copper capacity after Escondida in Chile, according to the International Copper Study Group.

Freeport says the deposit has the world’s biggest reserves of gold.

Any disruption could support prices of copper, which is the best performer among its peers this quarter, as banks from Goldman Sachs Group Inc. to Citigroup Inc. take a bullish view on the metal next year.

Indonesia is seeking to build a processing industry and prevent its mineral wealth from disappearing overseas.

While the rules allowed time for producers to build smelters, the government said that after three years shipments of semi-processed ores would no longer be permitted.

READ MORE: The 100bn gold mine and the West Papuans who are counting the cost