Indonesia and Freeport-McMoran dig in on mine stand-off

The stand-off between Indonesia and Freeport-McMoran continues.

The world’s biggest publicly-listed copper company said on Friday that a ban on exports from its giant Grasberg mine in the province of Papua remained in force.

“We are disappointed that this matter remains unresolved and concerned about the negative impacts for all stakeholders, especially our workforce and the local economy,” said Freeport chief executive Richard Adkerson.

Reports earlier this week claimed Freeport would be given a temporary export permit while it continued discussions with Jakarta over new mining regulations.

Shares in Freeport fell 0.5 per cent $16.71 in early trading in New York.

Indonesia wants to increase export duties and force all mining companies to convert their current contracts to special operating licences, an IUPK. Mining companies are also being asked to build or complete smelters in five years, and foreign operators must sell up to 51 per cent stake in their assets to locals.

Freeport is not willing to convert to an IUPK unless it retains the same rights and level of legal and fiscal certainty contained in its current contract.

The reason for its caution was evident in the company’s recent fourth-quarter earnings release where it revealed it was facing $469m in water taxes and penalties in Papua province dating back to 2011

During a post-results phone call with analysts Mr Adkerson said this was a “clear-cut” example of why Freeport had to protect its current rights.

“That’s what would happen to us if we want to a license without having any investment stability agreement. Under a licence, you’re subject to prevailing laws and regulations and any government can come in and impose taxes, fees, import duties, et cetera, et cetera, water taxes, surfaces taxes, vehicles taxes,” said Mr Adkerson

Grasberg is the world’s second-biggest copper mine and also the lowest cost because it also produces a significant amount of gold. Freeport says it will be forced to slash production if the ban is not lifted by the middle of February – the date by which the company will have used up all of its storage.

Lower production from Grasberg could further tighten the copper market if workers at another big copper mine go strike.

This week miners at Escondida in Chile rejected a pay offer from BHP Billiton and now look likely to take industrial action.

In a recent report, analysts at Macquarie said 77,000 tonnes a month of copper supply were at risk from the respective problems at the two mines. Copper was trading at $5,816 a tonne on Friday.