As the dispute intensifies, Freeport has expressed its hope of reaching a win-win solution with the government during the settlement period of 120 days according to its contract of work (CoW), as the Grasberg mine is too precious for either party to neglect.

Located in Mimika regency, in Indonesia’s easternmost province of Papua, the Grasberg mine is the world’s biggest gold mine and second-largest copper mine. The company has operated it for five decades.

“It’s an important asset for the company. It’s an important, vital, natural resource for the Republic of Indonesia. […] But, we have to find a way to work together, and Freeport is committed to trying to do that,” Freeport McMoRan chief executive Richard Adkerson told reporters on Monday.

PT Freeport Indonesia, the local unit of the politically connected gold and copper miner, last Friday obtained a recommendation to export 1.1 million tons of copper concentrates until Feb. 16 next year after the Energy and Mineral Resources Ministry agreed to convert the company’s CoW into a special mining license (IUPK).

It came with the requirement that it divest 51 percent of its shares within a decade of production and build a smelter within five years.

Nonetheless, Freeport has yet to accept the conversion as it would automatically annul its CoW signed in 1991 and push it to fulfill the divestment of ownership and smelter obligation.

The contract change is deemed to weaken its position against the government, particularly pertaining to its pursuit of a long-term investment stability guarantee until 2041, as IUPK holders must comply with the future prevailing law.

“Right now, we’re in an impasse with the Indonesian government, who says that we can only export if we forfeit our contract. Freeport’s position is that we can’t give up our contract,” said Adkerson.

On the same day that the government granted an extended export permit, Freeport notified the ministry about the areas of dispute between the parties.

The 120-day dispute settlement period then began, Adkerson said, adding that the company deserved the right to commence international arbitration.

“Based on the counsel of our external lawyer in Indonesia and our international lawyer as well, Freeport’s contract of work should remain in place,” Adkerson said. “Indonesian law and international law provide that the contract of work can’t be changed or terminated unilaterally, even by a government regulation.”

With the resignation of Chappy Hakim as Freeport Indonesia’s president director last Saturday, allegedly because of his opposition to the arbitration, the negotiations will be led by Adkerson.

Chappy, a retired air chief marshal who served for only three months in the president director role, is the eight Indonesian to have held the company’s top position. Previously, Maroef Sjamsoeddin, a former State Intelligence Agency (BIN) deputy head, stepped down in early 2016 after one year, following a recording scandal involving a lawmaker.

Energy and Mineral Resources Minister Ignasius Jonan acknowledged that one of several possibilities was for Freeport to take the case to international arbitration.

“However, it’s not necessarily going to be like that, as there is still enough time for us to negotiate with them,” he said, referring to a six-month adjustment period given for the company after the issuance of the IUPK.

(Read also: Indonesia ready for Freeport tribunal)

Illustrating the challenges of international arbitration, it previously took four years, from 2012 to 2016, for Indonesia to win a case against London-listed miner Churchill Mining Plc. at the International Center for the Settlement of Investment Disputes (ICSID) over a coal-mining permit revocation matter in East Kalimantan.

As Freeport now cannot rely on Indonesian executives to reach an agreement with the government, concerns have mounted about potentially lengthier and more complicated negotiations.

Further export delays would continue to hurt Freeport’s sales, after it missed its annual target last year.

For each month of export delays, the company, which employs around 32,000 people in Papua alone, claims that its share of production is reduced by approximately 70 million pounds of copper and 70,000 ounces of gold.

The firm said Monday that it had laid off 10 percent of its expatriate workforce and would dismiss contract workers this week.

The dispute is also taking place in the wake of several issues surrounding the company’s operations at Grasberg. A ruling by the tax court stipulated that the firm needed to pay US$469 million in water taxes and penalties to the Papua administration for water used between 2011 and 2015.

Moreover, the halt in Freeport Indonesia’s copper concentrate exports since Jan. 12 has led Rio Tinto, the world’s second largest miner, to reconsider its option to take over an effective 40-percent stake in Grasberg in 2023.

Investment Coordinating Board (BKPM) head Thomas Lembong said separately that the possibility of Freeport’s move to international arbitration would not have significant impacts on the country’s investment climate, including US investors. Many investors have good experiences investing in the country, such as in the banking or property sectors.

“Hence, one difficulty in a certain sector [like mining] can still be offset with success stories from other sectors,” Lembong said.

Freeport, government still aim to settle dispute outside arbitration Lengthy, costly process would harm both parties.

— DYLAN AMIRIO CONTRIBUTED TO THIS STORY.

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