Freeport set to resume Indonesian copper exports

July 27, 2014 - 12:34:25 am

JAKARTA: Freeport-McMoRan Inc clinched a deal with the Indonesian government allowing the miner to resume copper concentrate exports from the country, effectively ending a six-month tax dispute and paving the way for more miners to follow suit.

Freeport, which is expected to export 756,000 tonnes of copper concentrate in the second half of this year, received its permit from the trade ministry on Friday after signing a memorandum of understanding (MoU) with the government, Freeport Indonesia CEO Rozik Soetjipto said.

With its export permit in the bag, Indonesia’s top copper miner said it will resume full operations immediately, with concentrate shipments expected to resume next month from Grasberg, one of the world’s largest copper mines.

“In terms of permitting, everything is OK,” Soetjipto said. “We still have to load the ship, and this may take a few days.”

Freeport shares were up 1.79 percent on the New York Stock Exchange on Friday.

The company will now be subject to higher royalties, which will increase to 4 percent for copper and 3.75 percent for gold, up from 3.5 percent and 1 percent respectively, and the US-based miner will also have to pay export duties on shipments until it builds a smelter in the Southeast Asian nation.

In January, the government introduced a controversial escalating tax on metal concentrates that climbed to 60 percent by 2017. Under a revision of the tax, Freeport will pay a 7.5 percent duty on its copper concentrate exports, but that rate falls as it spends on its smelter, hitting zero once investment in the project exceeds 30 percent of total cost.

The deal is expected to take some of the pressure off President-elect Joko Widodo, who has said resolving the dispute, which has sapped government mining revenues, would be one of his top priorities when he takes power in October. The export tax was meant to force miners to develop local mineral processing facilities, allowing the government to derive bigger returns from Indonesia’s mineral resources.

But rather than pay it, most miners stopped exporting from Southeast Asia’s biggest economy, resulting in $1.3bn in lost copper concentrate shipments. It also led Indonesia’s second-biggest copper producer, Newmont Mining Corp, to file for international arbitration earlier this month over the new export rules it said were in breach of its contract.

A spokesman for Newmont Mining Corp, which owns the Batu Hijau mine on the Indonesian island of Sumbawa, said it is in talks with the government on a separate MoU that would allow it to resume operations at its massive copper mine. “We are encouraged by the news about Freeport, which we hope will pave the way for construction of a copper smelter and lead to an economically sustainable resolution of the export ban,” Newmont spokesman Omar Jabara said. 

Reuters

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