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Freeport to Give Up Current Contract to Extend Indonesian Operations Beyond 2021

January 18, 2017

Freeport to Give Up Current Contract to Extend Indonesian Operations Beyond 2021

Freeport Indonesia wants to swap its current contract-of-work with a special mining permit to extend its Indonesian operation beyond 2021. (Reuters Photo/Muhammad Yamin)

By : Rangga Prakoso | on 4:43 PM January 17, 2017
Category : Business, Corporate News, Featured

Jakarta. Freeport Indonesia, the local unit of United States mining giant Freeport McMoRan, has asked the Indonesian government to swap its current contract-of-work with a special mining permit as the miner races against time to secure an extension for exporting gold concentrates from Grasberg in Papua, Indonesia’s largest gold mine.

The Ministry of Energy and Mineral Resource last week issued a regulation that bars contract-of-work contractors from exporting mining concentrates starting from Jan. 12.

Contractors can only export concentrates once they acquire a special mining permit, the special mining business license (IUPK), the ministry said.

IUPK is one of a new series of licensing regimes to replace the work contracts of all miners that have been operating in Indonesia since the country revised its mining law in 2009.

"Freeport has conveyed to the government its intention to convert its current work contract into IUPK," Freeport spokesman Riza Pratama said on Monday (16/01).

The move marks a significant progress after months of negotiation between the government and Freeport ­ which had been looking for ways to ensure it can can extend its Indonesian operation beyond 2021, the deadline for its current contract of work.

The government is adamant that the only way Freeport could do that was by complying with the 2009 law, which apart from dropping the contract-of-work, also requires the miner to divest the majority of its shares to local investors and build a smelter in Indonesia to process raw mining ores.

Freeport had been reluctant on complying with the 2009 mining law, arguing that its contract-of-work, first signed in the 1960s, shield it from any change in domestic laws and taxation regimes.

Yet the prospect of losing a lot of cash from being unable to export concentrates seemed to force Freeport’s hand and leave it with no option but to cave in to the government’s demand.

Up until last week, Freeport was only allowed to export its concentrates as long as it could show progress in the construction of its smelter in Indonesia.

Riza said if Freeport goes ahead with swapping its contract-of-work for the special mining permit, the company can be sure of continuing its Indonesian operations beyond 2021.

Freeport has already pledged $17 billion in investment to expand its mining operation in Grasberg until 2041 and another $2.1 billion to build a smelter in Gresik, East Java.

"We will resume the construction of our smelter as soon as we get our operation rights extended," Riza said.

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