T

he government plans to push Freeport McMoRan Copper and Gold to meet the 2014 deadline to construct smelting facilities as the mining giant remained reluctant, saying that the scheme was “difficult”.

Energy and Mineral Resources Ministry’s director general for coal and minerals affairs Thamrin Sihite said on Wednesday the government would try to facilitate the global miner, whose subsidiary PT Freeport Indonesia operates the Grasberg gold and copper mine in Papua.

“We are willing to [...] provide incentives as long as they come up with a proposal on how to operate the facility in the country without hurting their business plan,” he told The Jakarta Post in a telephone interview.

The top executive was responding to Freeport’s senior vice president of marketing and sales Javier Targhetta who said that while the company was more than willing to supply any new copper smelters in Indonesia with raw copper concentrates it remained reluctant to build smelting operations itself.

“We have our contract of work and are abiding by it. If there are any new smelting capacities built in Indonesia, we will make every effort to supply concentrate,” Targhetta said recently in Madrid as quoted by Reuters.

“Smelting is a difficult business. You have big capital expenditure and small or no margins at current treatment and refining charges [TC/RCs], and I don’t see TC/RCs improving in the coming years,” he added.

Commenting on this, Thamrin said the government would still hold discussions with Freeport in order for the latter to comply with the 2009 Mineral and Coal Law and an Energy and Mineral Resources Ministry regulation issued in May last year, which will be effective in 2014.

Under the regulations, the government is currently renegotiating contracts with foreign-based miners including Freeport Indonesia in a bid to push investors to add more value to the country’s mining sector. The government is also seeking higher royalty payments and divestment of controlling shares.

Currently, Freeport Indonesia, along with PT Newmont Nusa Tenggara (NNT) — a subsidiary of US-based Newmont Corp. — supply copper ore to Indonesia’s sole copper smelter in Gresik, East Java, which is operated by PT Smelting Gresik.

Thamrin said a possible plan discussed was for Freeport Indonesia to invest in a smelting plant near the existing facility in Gresik, of which around 40 hectares of land could be provided to support the scheme.

Thamrin said while investors have been reluctant to build smelters in Indonesia as they claimed they had yet to receive certainty over ore supplies in addition to questions over infrastructure and power supply, those difficulties should not be a problem in Gresik.

Separately, Freeport Indonesia president director Rozik B. Soetjipto said the firm was ready to support the joint study with the government to review the feasibility of constructing smelting facilities.

One of the alternatives currently being discussed is for Freeport Indonesia to team up with another party who will build the smelter.

Separately, the Indonesian Mining Experts Association chairman Achmad Ardianto said that while Freeport must have their own reasons behind the reluctance to build smelters, the company should “open up” to the government over their problems to find a win-win solution.