Freeport & Indonesian Government Agree on New Mining Permit
Arizona-based mining giant Freeport-McMoRan finally reached an agreement with the Indonesian government regarding the extension of the permit to operate the Grasberg mine, the world's largest gold mine and third-largest copper mine, in Papua. Ignasius Jonan, Indonesian Energy and Mineral Resources Minister, said Freeport can per direct apply for a 10-year permit extension to mine at Grasberg beyond the year 2021. Afterwards, it can apply once more for a 10-year extension.
On Tuesday morning (29/08) a press conference was held in Jakarta at the headquarters of Indonesia's Energy and Mineral Resources Ministry. At this press conference Freeport McMoran CEO Richard C. Adkerson, Indonesian Finance Minister Sri Mulyani Indrawati, Indonesian Energy and Mineral Resources Minister Ignasius Jonan, and Special Communications Staff of the Minister of Energy and Mineral Resources Hadi Djuraid were present.
The dispute between Freeport-McMoRan's local unit Freeport Indonesia and the central government originates from Indonesia's 2009 New Mining Law, which set a far more protectionist approach in the country's mining sector (basically breaching existing contracts with miners' long-standing contracts of work). Starting from 2014 lengthy and heated discussions occurred between both sides regarding issues including the divestment obligation, the ban on exports of mineral ore, the mandatory construction of a new smelter, higher taxes and royalties, and the issue of extending Freeport's 30-year mining contract (due to expire in 2021).
Finance Minister Sri Mulyani said results of negotiations ensure more state revenue from the mining sector for the Indonesian government, particularly stemming from operations of Freeport Indonesia. She added that details with regard to taxes and other matters will be included in the attachment of the Special Mining Business License (in Indonesian: Izin Usaha Pertambangan Khusus, or IUPK) of Freeport Indonesia.
It means Freeport Indonesia agreed to change its existing contract of work into an IUPK (previously Freeport had been reluctant to make this shift as it could not enjoy the same fiscal and legal advantages under the IUPK).
Furthermore, Freeport also agreed to divest up to 51 percent of its shares. Currently, the central government already owns a 9.36 percent stake in Freeport Indonesia. However, there still need to be negotiations to determine which parties will be able to buy the shares, for what price, and in what time-frame. Sri Mulyani said she expects these negotiations to be completed before the end of the week.
Adkerson said the decision to agree with the 51 percent divestment rule and the construction of a second smelter are major concessions.