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Freeport-McMoRan strikes a deal with Indonesia
July 28, 2014

The six-month stalemate over export taxes and royalties between Indonesia and Freeport-McMoRan came to a end with a deal that will pave the way for Freeport-McMoRan to resume exports of its copper-concentrates from its Grasberg Mine, The Wall Street Journal reported.

The Grasberg Mine is the largest in the country and accounts for about a fifth of the copper Freeport mines.

Under the deal announced July 25, Freeport's Indonesia unit will pay higher royalties, help build a smelter and begin paying taxes on copper-concentrate exports, the government said.

Freeport also agreed to "provisions" to increase the stake in the local unit held by the Indonesian government and nationals to 30 percent from the current 9.36 percent. Freeport currently controls a 90.64 percent stake.

The deal represents a victory for Indonesia, which has tried to gain greater control of its vast natural resources and gain more in taxes and royalty payments from foreign miners and investors. Freeport Chairman James “Jim Bob” Moffett said the agreement would “enable continuing benefits of the Grasberg operations for the government, the local communities in Papua, our large Indonesian workforce and our shareholders.”

In January, the government imposed an export ban aimed at keeping lucrative refining work within the country.

Newmont Mining Corp. also has large operations in Indonesia but hasn't yet agreed to an export deal. Earlier in July, Newmont sought arbitration with the U.S.-based International Center for the Settlement of Investment to resolve its standoff with Indonesia.

"We are encouraged by the news about Freeport," Newmont spokesman Omar Jabara said. Newmont, “has been holding ongoing meetings with the government to define the outlines of a separate memorandum of understanding” that would allow the company’s Batu Hijau copper and gold mine to resume operations after the company shut it down in early June because of the export ban.

Director General of Coal and Mineral Resources Sukhyar said once the deal with Freeport is signed the company may start exporting copper concentrate within two weeks. By the end of the year, Indonesia's total copper exports are expected to reach 756,300 tons with an estimated value of $1.56 billion, said Sukhyar, who uses a single name. That is about half of last year's exports of 1.45 million tons.

Freeport had initially refused to renegotiate its current contract, which doesn't require it to pay an export tax and wasn't due to expire until 2021. However, it stood to lose a huge investment in the country if it refused to sit down with the government.

Freeport has invested billions of dollars since the early 1960s in the eastern province of Papua to develop Grasberg, among the three biggest gold and copper mines on the planet.

Sukhyar said Freeport will provide a $115 million assurance bond to build a smelter, with duties on its exports declining to zero from 7.5 percent as the facility progresses. Meanwhile, its royalty payments will rise to 4 percent from 3.5 percent for copper and to 3.75 percent from 1 percent for gold.

In addition to the ban on ore exports, the government in January instituted export duties on mineral concentrates of copper, iron, zinc, and manganese. The duties, which begin at 20 percent and 25 percent, would rise to 60 percent before a complete ban on concentrate exports is imposed in 2017.

The goal is to force mining companies to build smelters and refine their minerals within the country to add value to the economy.
 

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