Following more than five years of discussions, PT Freeport Indonesia’s (PT-FI) and the government have failed to reach an agreement on concentrate exports and other matters related to its contract of work (COW).
Indonesian government regulations passed in January and February require that PT-FI terminate its COW and convert to a special license (IUPK) in order to export its concentrate production. PT-FI has advised the government that attempts to enforce this regulation on PT-FI violates its COW and that it is unwilling to terminate its COW unless replaced by a mutually acceptable form of agreement providing fiscal and legal assurances to support its long-term investment plans in Papua, Indonesia.
As a result, PT-FI has been unable to export concentrates and is proceeding with its plan to suspend investments in Papua, reduce its production by approximately 60% and implement cost savings plans involving significant reductions in its workforce and spending levels with local suppliers.
“Despite extensive efforts to reach an agreement with the government, we have been unsuccessful in achieving a resolution that would avoid the negative impacts for all stakeholders, especially for our workforce and the local economy,” said Richard C. Adkerson, Freeport-McMoRan (FCX) president and chief executive officer. “We are simply asking the government to honor our legally binding contract. We urge the government to honor the contract and demonstrate that the country remains open for foreign investment. This would be in the best interests of all stakeholders, including the government of Indonesia, our large workforce, the local community, local suppliers and Freeport’s shareholders.”
PT-FI’s first quarter production has been adversely impacted by the suspension of concentrate exports and a temporary outage since January 19 at PT Smelting. PT Smelting has advised PT-FI that it expects to resume operations in March. Assuming resumption of PT Smelting’s operations in March and a continuation of the ban on exports, FCX estimates its first quarter sales will be reduced, resulting in deferrals of approximately 170 million pounds and 270,000 ounces, representing a reduction of approximately 17% for copper and 59% for gold of its consolidated first quarter sales.
For each month of delay in obtaining approval to export, PT-FI’s share of production is projected to be reduced by approximately 70 million pounds of copper and 70,000 ounces of gold.