Gold and copper mining giant PT Freeport Indonesia (PTFI) plans to expand its existing copper smelter as the company tries to distance itself from a new smelter project that is still encouraged by the authority.

Freeport Indonesia signed on Nov. 13 a deal with Japanese metal manufacturer Mitsubishi Materials Corporation to expand their joint venture PT Smelting Gresik, which runs a copper smelter in Gresik, East Java.

The two companies plan to raise the smelter’s annual production capacity from 1 million tons to 1.3 million tons with the expansion set to be completed in 2023.

Freeport Indonesia spokesman Riza Pratama told The Jakarta Post on Monday that the expansion was meant to fulfill the company’s legal obligation to refine metal ores domestically.

“This is an option other than building a new smelter. PTFI’s commitment remains,” he said.

PTFI and its shareholder, publicly-listed American mining giant Freeport-McMoRan Inc, have been trying to distance themselves from a promised $3 billion copper smelter project, slated for completion in 2023, that executives have decried as unlikely to be completed on time and as unprofitable.

However, the Energy and Mineral Resources (ESDM) Ministry’s mining director general, Ridwan Djamaluddin, stood his ground on both the deadline and the new smelter.

“Expansion is good, but construction has to go on,” he told reporters on Monday. “A deadline extension only for when we’re at the very edge and it’s not done. But don’t delay it now.”

Freeport floated the new smelter project as a prerequisite to extending its mining permit over the Grasberg mine in Papua, the world’s largest gold mine located in Indonesia’s most impoverished province. PTFI’s permit was extended from 2021 to 2041.

The new smelter has a planned annual production capacity of 2 million tons of copper concentrate. It is being built near PTFI’s existing smelter in Gresik.

However, PTFI deputy president director Jenpino Ngabdi asked regulators on Aug. 28 to push back the smelter completion deadline to 2024, as contractors were unable to meet deadlines amid coronavirus-induced lockdowns.

Freeport-McMoRan chief executive Richard Adkerson went a step further on Oct. 22, when he said the miner preferred “to avoid having to undertake this major new construction project” and, instead, expand the existing smelter plus add a precious metals refinery.

“That [new smelter] could not be expanded to take all of our future concentrate production, so there would have to be an agreement allowing us to export the excess,” he said during a third-quarter earnings conference call.

Adkerson said the alternative had some attractiveness for the Indonesian government, which was financially challenged by COVID-19, as PTFI would pay export fees to export the excess metal ores.

The government has big plans to transform Indonesia from a commodity-driven economy into an industrial economy by forcing metal miners to invest in metal smelters, among other strategies.

To that end, the new Coal and Mineral Mining Law bans all metal ore exports starting in 2023 and promises incentives, such as longer permits and bigger concessions, for miners that invest in downstream industries.

The Job Creation Law also offers incentives to grow the mining industry, which include less red tape and laxer environmental safeguards, said Komaidi Notonegoro, executive director of natural resources think tank ReforMiner Institute, on Wednesday. The law specifically offers a zero percent royalty for coal miners investing in downstream industries.

“A [smelter] expansion indicates that mineral downstreaming is running,” he said, commenting on the development.

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