JAKARTA: Giant miner PT Freeport Indonesia has secured assurance from the government that it can continue exporting copper concentrate, despite slow progress in the construction of the company’s smelting plant.
The Energy and Mineral Resources Ministry’s director general for mineral and coal, R. Sukhyar, said in Jakarta here the other day that the recommendation of an extension of Freeport’s export permit would be given because the company had made progress on land procurement for the smelter.
“The land is being prepared and will be under a leasing scheme. Freeport Indonesia will be the legal entity that will develop the smelter. Its agreement [with PT Petrokimia Gresik] regarding the land will also be a binding agreement,” Sukhyar said after a meeting with the company’s representatives.
Although Freeport Indonesia has been given the approval to have its export permit extended, a formal letter will only be signed at the weekend, as the mineral and coal directorate general still needs to assess technical issues related to the company’s smelter development, according to Sukhyar.
Freeport Indonesia, a subsidiary of US-based Freeport McMoRan Inc., plans to use 80 hectares of land belonging to Petrokimia Gresik as the site of the smelter. The land is located in Gresik, East Java, adjacent to a copper smelter operated by PT Smelting Gresik, which at present processes a small part of Freeport’s copper concentrate.
Sukhyar said that Freeport would deposit a commitment fee of US$130,000, around 2 percent of the leasing fee the company will have to pay per year, as a guarantee of the progress of the land procurement.
Under a new development plan, Freeport Indonesia will develop a smelter able to process 2 million tons of copper concentrate into copper cathode with an investment of about $2 billion. The company previously planned to build a smelter with a capacity of 1.6 million tons.
The building of the smelter is a consequence of the 2009 Mining Law, which requires mining companies to give an added value to their products. The law is also the legal basis of the government’s ban on mineral ore exports, which came into effect on Jan. 12 last year.
Despite the ban, the government is allowing semi-finished products, such as copper concentrate, to be sold overseas until 2017. However, mining firms that want to continue exporting semi-finished minerals have to show a commitment to smelter development.
Freeport’s copper concentrate export permit is scheduled to expire this weekend.
Following the government’s threat earlier this week to freeze Freeport’s export permit because of the company’s seeming reluctance to meet fulfill its obligation, the copper miner rushed to seal a memorandum of understanding (MoU) with Petrokimia Gresik, which was announced on Thursday.
“We have shown our commitment with the decision on the location of land to be used for the smelter,” Freeport Indonesia president director Maroef Sjamsoeddin claimed.
He added that his company did not yet definitely know when the construction of the smelter would begin, as a number of preliminaries needed to be undertaken, such as an environmental study and the issuance of permits from the local administration.
Apart from approving an extension of the company’s export permit, the mineral and coal office has also agreed to extend by six months the validity period of an MoU on the drafting of an amendment to Freeport’s contract of work. The MoU, which was signed in July last year, detailed a principal agreement regarding adjustments to several points in Freeport’s working contract in Indonesia.
According to Sukhyar, under the extended MoU, both parties have agreed to discuss ways to increase benefits for Indonesia from the company’s operations, as well as the possibility of developing a downstream industry for copper products in Papua.
