Washington — Freeport-McMoRan executives said Tuesday they will stop the Grasberg underground block-cave mine expansion in Indonesia unless an agreement on exports and divestments can be reached with the government.
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"It is totally dependent on the progress of our discussions with Indonesia," President and CEO Richard Adkerson of the US-based copper giant said in a conference call with investors and analysts. "We will approach this is good faith, and I'm convinced the government will too," he said. "The object will be to find a mutual agreement that each side can accept ... and that process starts right now."
Indonesia passed new regulations in January that required the company to change the terms of its work contract in exchange for rights to export copper concentrate for treatment and refinement into cathode. The regulations also required Freeport to divest 51% of its operations.
The company declined the accept the terms and immediately began discussions to resolve the dispute, though copper concentrate exports were suspended for three months.
To maintain profitability, Freeport capped capital spending at the Grasberg complex, reduced its 32,000-member workforce by about 10%, and cut spending on the block-cave expansion by one-third to about $40 million/month.
"We're prepared to suspend that if we have to," Adkerson said, referring to the block-cave expansion immediately below the main Graberg open pit mine.
"Doing that has some long-term consequences for all the stakeholders because it would delay ... the ramp-up period, affecting the costs and economic consequences for everyone," he said.
The block-cave expansion project aims to mine 964 million mt of ore with average grades of over 1% copper and 0.78 g/mt of gold.
The company has spent about $3 billion so far on the expansion. "We're just over halfway through the initial development of that resource; it's transformational," Adkerson said.
After discussions with the government reached an impasse in mid-February, Freeport triggered a 120-day notification period signaling that it would seek international arbitration if a solution was not found by mid-June.
Last month, the government amended certain provisions to allow Freeport to keep its work contract and continue exporting concentrate until October 10. A memorandum of understanding was signed last week.
Freeport exports about 60% of its concentrate from the Grasberg complex for further treatment and refinement into exchange-traded cathode. About 40% is treated and refined at the company's Gresik Smelter & Refinery in Indonesia.
"We will have discussions with the government about creating new smelter facilities," Adkerson said. "All of these things will be addressed as a package."
--Nick Jonson, firstname.lastname@example.org
--Edited by Derek Sands, email@example.com