John McBeth – Freeport McMoRan Copper & Gold (FCX) chairman Richard Adkerson has twice flown to Jakarta this year as he tries to persuade President Joko Widodo's administration to make an early decision on extending the American mining company's contract over the fabled Grasberg mine beyond 2041.
Adkerson wants a guarantee of a 20-year extension in planning the future development of the four rich ore bodies comprising one of the world's most lucrative mines lying 3,500 meters up in Papua's rain-swept Central Highlands.
Under production since 1988, the bottomless Grasberg still has proven and probable reserves of 15.1 million tonnes of copper and 28.3 million ounces of gold, making it the world's third-largest copper reserve and biggest gold deposit.
Consolidated sales from the mine amounted to 4.2 billion pounds of copper and 1.7 million ounces of gold in 2022, the first year it returned to full production after converting from a vast open pit to a fully underground, rail-fed operation.
Adkerson and president and treasurer Kathleen Quirk met personally with Widodo on one of their two trips to Jakarta, an indication of the importance FCX attaches to retaining the glittering jewel in the Phoenix-based company's crown.
Insiders describe the discussions as "fluid" and say they revolve around three conditions, which include boosting the government's stake in PT Freeport Indonesia (PTFI) subsidiary from 51.2% to 61.2%, the completion of a long-delayed US$3 billion smelter at Gresik, East Java, and adding a second Papuan to the PTFI board.
Investment Minister has indicated progress is being made. "The discussions are nearly complete, and the focus is on ensuring that the state acquires the additional shares at the lowest possible cost," he said earlier this month.
Lahadalia expects state-owned mining holding company PT Mineral Industry Indonesia (MIND-ID) to make the final payment of the $3.8 billion it laid out for its 51.2% stake in PTFI in 2024, five years after sealing the deal.
"It is personally gratifying to experience the markedly more positive attitudes there (in Indonesia) about Freeport than in the past," Adkerson said in an upbeat presentation to a first-quarter earnings conference call last month.
Apart from the growth of the electric car industry driving a positive outlook for copper, he said FCX's relationship with Indonesia had improved greatly since the government took the majority interest in PTFI in 2018.
Up until then, Freeport had been treated as public enemy No 1, under attack from environmental groups for its in-river tailings (rock waste) disposal system and often blamed for past human rights abuses committed by the Indonesian military in the mine's vicinity.
It was also criticized for the cozy relationship between legendary Freeport CEO Jim-Bob Moffett, who died in 2021, and president Suharto, the authoritarian leader who was always grateful for the gamble Freeport took on Papua in the late 1960s.
In previous years as well, traffic on the steep 100-kilometer road between the lowland logistics center of Timika and Freeport's high-altitude Tembagapura mining camp had been the target of sniper fire from Papuan rebels.
S&P Global estimates that Grasberg represents an earnings concentration for FCX of 35-40%, but the firm also owns more than 50% of each of its two less profitable copper assets in Peru and Chile and 72% of the Morenci copper mine in Arizona.
"As resource nationalism appears to be rising around the world, we believe the globally important Grasberg mine could be exposed to further changes in economics (for FCX), particularly as permits are reconsidered for extension in the next decade or two," the ratings agency said in a note last month.
Although MIND-ID posted a $1.45 billion profit last year, Center for Energy and Mining Law executive director Bisman Bakhtiar feels the company will be taking on an unnecessary burden by buying a further 10% stake in PTFI.
FCX will continue to retain operational control of the world's biggest underground hard-rock operation, and along with it the lucrative supply contracts that make it an enticing prize for political interests in Jakarta.
Sources familiar with the way the mine is operated say the government has no practical mining expertise at all to replace the existing Freeport team, despite an obvious divergence of objectives between Phoenix and the state.
Analysts say if FCX is not granted an early extension, considered unlikely at this stage, planners may be tempted to "high grade" the mine, giving priority to exploiting the more profitable ore deposits over the next 18 years.
Freeport's new $3.4 billion smelter at the Java Integrated Industrial Park Estate (JIPE), north of Surabaya, was originally planned to be commissioned by mid-2024 but construction is reportedly running behind schedule.
When complete, the facility and Mitsubishi's existing Gresik smelter, PT Smelting, which began commercial operations in 1999, will process the bulk of the three million tonnes of copper concentrate the Grasberg produces each year.
About 60% of PT Smelting's output currently goes to overseas markets, but the Widodo government plans to impose a ban on all copper exports next year in line with its strict policy of adding value to its vast mineral wealth.
Nickel ore exports were banned in 2020 with official data showing that the three new Chinese-funded processing facilities in Sulawesi and Maluku had increased the commodity's value from $1.1 billion to $20.8 billion in 2021 alone.
The Energy and Resources Ministry was forced to delay its plan to ban copper concentrate exports in June after Freeport warned it would have to cut back production until the new 1.7 million-tonne smelter is in operation.
Amman Mineral, a subsidiary of Indonesian-owned conglomerate Medco Energy, may be in worse shape because it exports all its concentrate from Sumbawa's Batu Hijau copper and gold mine.
Executives said in an October 2022 presentation that Amman's $1.4 billion smelter, with a production capacity of 220,000 tonnes of copper cathode, would not be operational until the end of 2024.
Bauxite is on the export ban list next month, with mining officials confident the country's four existing bauxite smelters are sufficient to absorb 12.5 million tonnes of bauxite and produce 3.9 million tonnes of alumina.
Eleven new plants are also under construction. They will eventually churn out a combined 12.6 million tonnes of chemical and smelter-grade alumina, the precursor for the manufacturing of aluminum.
The ministry puts total bauxite reserves at 1.27 billion tonnes, or about 4% of the world's total, mostly concentrated in West Kalimantan. That places Indonesia in sixth place among the countries with the largest reserves.
China's state-owned ENFI Engineering Corp and PT Rasamala Metallurgy Indonesia (RMI) have signed a preliminary deal to build a fourth, $2.3 billion copper smelter at Fakak in Papua's western Bird's Head region.
PTFI and MIND-ID have been cited as strategic partners, but PTFI president-director Tony Wenas told Asia Times that the company had yet to talk to ENFI about where it would source its concentrate from.
Fakfak lies 550 kilometers west of Timika and only a short distance overland from BP's Tangguh LNG complex in Bintuni Bay, a potential source of power for both the new plant and to replace Freeport's current coal-fired generators.
Only known up to now for its auto-cleaning and courier services, PT RMI is making its first venture into minerals. It is headed by Hence Carlos Kaparang, a member of the Suharto family's Berkaya Party which failed to gain a seat in the 2019 legislative elections.
State power utility Perusahaan Listrik Negara (PLN) recently signed an MOU with a French technology company to build a hydrogen manufacturing plant in Fakfak as part of the proposed industrial complex.
Bintuni Bay is also the site of Genting Oil and Gas Ltd's Kasuri block, which will supply 230 million cubic feet (MCF) of gas a day to a floating LNG terminal, the first time the process will be used in Indonesian waters.
A further 101 MCF will go to a $1.5 billion ammonia and urea plant to be built by state-owned fertilizer company PT Pupuk Kalimantan Timur on the south coast of Bintuni Bay in Papua's Bird's Head region.
Discovered in 2011, Kasuri contains proven reserves of 2-3 trillion cubic feet (TCF) and is expected to come on stream in 2025, adding to Indonesia's existing LNG production of 32.2 million tonnes a year and giving West Papua another economic anchor.
Source: https://asiatimes.com/2023/05/freeport-digging-deep-for-new-grasberg-mine-deal