Freeport-McMoRan closer to resolution with Indonesia, but not there yet

July 8, 2014

Freeport-McMoRan Copper & Gold and the government of Indonesia have agreed to a terms on a draft of a draft memorandum of understanding (MoU), but have yet to sign anything that would clear the way for the company to resume copper exports.

Reuters reported that Indonesia's industry minister said late Monday that Freeport could resume concentrate exports within weeks, but legal experts cautioned that any contract agreement could still fail when a new government takes office.

Freeport Indonesia CEO, Rozik Soetjipto, told Reuters he could not give details of the draft Memorandum of Understanding (MoU) because it had yet to be signed.

Freeport, which runs the Grasberg Mine in Indonesia, one of the world's biggest copper mines, been in talks with the government to resolve a six-month dispute that has halted concentrate exports after Indonesia introduced new export rules on Jan. 12.

Industry Minister Mohamad Hidayat said that the MoU was due to be discussed at an Indonesian cabinet meeting this week, and finalized within two weeks.

After Freeport pays a smelter construction bond of $115 million, the finance ministry will then sign a lower export tax regulation to allow exports to resume within a month, he added.

Progress on a deal could be hindered by Wednesday's presidential election. Incumbent Susilo Bambang Yudhoyuno is unable to contest after serving two terms and the winner of an expected tight contest will not take office until October.

Under the draft MoU, government officials say Freeport has agreed to divest 30 percent of its Indonesian unit, pay a royalty of 4 percent for copper sales and 3.75 percent for gold sales - up from 1 percent previously - and agreed to build a smelter and pay the government a repayable bond.

The export rules introduced in January would have forced Freeport to pay an export tax of 25 percent, rising to 60 percent in the second half of 2016.

The rules are part of a government drive to force miners to build smelters and processing plants in Indonesia.

Newmont, the other major copper miner in Indonesia, has taken a more aggressive stance in talks and earlier this month filed for international arbitration, drawing a rebuke from the government.


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