Freeport-McMoRan Copper & Gold Inc. struck a deal with Indonesian government officials Friday to immediately resume operations at Grasberg, ending a six-month tax dispute, while opening the door for other miners to follow suit. Freeport, Indonesia’s No. 1 copper miner will begin shipments next month; it operates one of the world’s biggest mines in West Papua.
CEO Richard C. Adkerson praised the deal. “We are pleased to enable benefits of the government, local communities, our large Indonesian workforce and our shareholders,” he said in a statement. “We value our partnership with the government and look forward to continuing success.”
The Phoenix-based Freeport, forecast to export 756,000 copper tons in the second half of 2014, was granted a trade ministry permit on signing a memorandum of understanding (MoU) with the government, according to a PT Freeport official. The company also has agreed to renegotiate the contract of work (CoW) under which it operates within six months, company representatives added.
Accordingly, Freeport will owe higher royalties, at 4% for copper and 3.75% for gold — up from 3.5% and 1% , respectively — while paying export duties on shipments pending construction of a smelter in the nation, which, despite being the region’s top economy, is steeped in poverty and lacks basic infrastructure.
In Q1, Jakarta first introduced its contentious escalating tax on metal concentrates climbing to 60% by 2017. Under the revision, Freeport will pay a 7.5% duty on its copper concentrate exports — a rate decreasing alongside investments in its new smelter, leveling off completely once project expenditures exceed 30% of cost.
The agreement will surely help incoming President Joko Widodo, who partly campaigned on resolving the dispute, which has hurt revenues in one of the world’s most geologically rich mining jurisdictions. The export tax, first announced in 2009, sought to force miners to develop mineral processing facilities locally, allowing Indonesia a greater share from mineral resources.
Freeport currently smelts 30% to 40% of output at a smelter in Gresik, Java. The company previously announced plans to work with state-owned miner Antam to construct Indonesia’s second copper smelter.