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Jakarta Post

Freeport mulls '€˜force majeure'€™

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Sat, March 1, 2014   /  09:41 am

Freeport-McMoRan Copper & Gold Inc., the world'€™s largest publicly traded copper producer, might have to declare force majeure on concentrate sales from its Grasberg mine in Papua because of new rules on mineral exports, Bloomberg reported on Friday.

The company might also consider cutting back on operating costs, deferring capital expenditure and implementing staff redundancies if it was unable to resume normal operations over an extended period, Phoenix-based Freeport said in a filing on Thursday.

 Freeport'€™s local unit still had not received export permits by Feb. 24., CEO Richard Adkerson said in a presentation at a mining conference in Florida Thursday.

The new rules curb the shipping of unprocessed ore and place duties on exports of copper concentrate, a semi-processed raw material, as the country seeks to increase the value of its exports. Freeport says the new regulations conflict with its rights under an existing contract with the government.

Grasberg has produced an average of about 112,000 metric tons a day since mid-January, about half the normal rate, the company said on Thursday. Freeport sends about 40'€“50 percent of its regular output from Grasberg to a smelter it co-owns in Indonesia.

Force majeure is a legal clause that allows companies to miss deliveries because of circumstances beyond their control.

Meanwhile, Freeport Indonesia'€™s vice president for corporate communications Daisy Primayanti said in Jakarta on Friday that the company had cut its production since Jan. 12 because the company was still unable to secure export permits from the government.

'€œProduction is reduced and only being used to meet supply to Smelting Gresik. We have also adjusted a number of activities due to the cut in production. However, we have not carried out any layoffs,'€ Daisy told The Jakarta Post in a telephone interview.

The director general of minerals and coal at the Energy and Mineral Resources Ministry R. Sukhyar confirmed earlier this week that Freeport Indonesia had filed an application to obtain the recommendation needed to resume its exports. Sukhyar said the application was still being processed.

Raw-mineral exports have been totally banned since Jan. 12. Despite the full ban, the government has exempted mining companies producing half-processed products, such as concentrate, to continue exporting their products until the end of 2016.

The government, however, has put in place a progressive export-duty scheme as disincentive for these miners to build smelters and refineries in the country.

In addition, miners need to apply for permits to be able to continue exporting their mineral products. However, permits will only be issued if the miners are able to show their serious commitment to building their smelters or to processing their ores or concentrates at other smelters.

Freeport Indonesia has signed initial agreements to supply concentrate to domestic smelters, including with PT Indosmelt and PT Nusantara Smelting Corporation. It also recently agreed with state-owned diversified miner PT Aneka Tambang to work on a feasibility study to build a copper smelter.

Sukhyar said his office needed details of the exact amounts Freeport would supply to the three smelters.

'€œThere are already sales and purchase agreements but the volumes to be supplied are not clear. By March 7 they have to tell us the details of concentrate volumes to be supplied,'€ Sukhyar said.

Last week, the Trade Ministry granted permits for nine mining companies to export half-processed mineral ore, a concession that will enable overseas mineral shipments for the first time since the raw-ore export ban took effect.

In accordance with a new regulation, the companies will have to pay an export duty of 20 percent in the first year.

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