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Indonesia: Freeport and Government Conclude Deal

Freeport and Government Conclude Deal

by Rangga Prakoso | Jakarta
April 7, 2014

R. Sukhyar, director general for coal and mineral resources at the Ministry of Energy and Mineral Resources, announced on Monday that the government had reached a conclusion in the talks of renegotiating a contract with Freeport Indonesia.

Freeport Indonesia is one of the holders of a contract of works. The government is seeking to negotiate new terms as a consequence of the 2009 Mining Law.

Sukhyar said that both Freeport and the government had agreed on the six points being negotiated in the talks, namely an added-value obligation, a reduction in the concession area, local content requirement, a higher royalty rate, divestment obligation and a new contractual period.

“All has been agreed, we just need to amend the contract,” he said.

Sukhyar said Freeport agreed to refine all of its processed copper output — known as copper concentrates — domestically starting in 2017.

Freeport owns the rights to develop and exploit the Grasberg mine in Papua, the largest gold mine and the second-largest copper mine in the world.

The miner currently refines 30 percent of its copper concentrates at a smelting facility in East Java and had agreed to supply the remainder to two new facilities that will be built by state-controlled miner, Aneka Tambang, and Indosmelt.

Sukhyar said Freeport had also agreed to cut its concession size to 127,000 hectares from 212,000 hectares even though some of the returned land may hold gold reserves.

“Actually, they only need 10,000 hectares for exploitation as they have gone underground,” he added.

Furthermore, Freeport had agreed to comply with the regulation on the new royalty rate for copper, gold and silver with 4 percent, 3.75 percent and 3.25 percent, respectively, Sukhyar said.

The mining giant also agreed to divest 30 percent of its shares to local entities until the end of its contract in 2021, Sukhyar said, adding that the central government will become priority buyers for the stake, followed by the regional governments and the private sector.

“If it [the share] is being offered to the government then [the valuation] will not be based on the market price but on replacement cost. The cost already incurred is the amount we will pay,” he added.

The development would certainly give a massive boost to the government’s efforts to take more benefits from the country’s mineral resources as Freeport is the largest miner renegotiating new terms.

Freeport had previously stated that it wants another 20-year extension on its contract and its compliance with the government’s terms may grant them their wishes. Freeport Indonesia planned to invest $17 billion to develop its Grasberg mine until 2041.


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