Freeport Is Fighting a Two-Front War in Indonesia



Grasberg impasse

As we noted in the previous part, Freeport-McMoRan’s (FCX) Grasberg mine in Indonesia is facing a labor situation. However, Freeport’s Indonesia issues aren’t limited to the labor issue. The company is also involved in a negotiation with the Indonesian government. Let’s look at the different issues between Freeport and the Indonesian government.

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Mining rules

Earlier this year, Indonesia revised its mining rules. The rules would require Freeport to convert its existing contract of work into a special operating license called an IUPK. Freeport would also need to divest 51% of its stake in Indonesia operations to the Indonesian government or its citizens and construct a smelter in Indonesia (EIDO) within five years.

Freeport wants the Indonesian government to extend its mining permit beyond 2021. According to Indonesian law, Freeport’s mining contract can’t be extended before 2019, which is two years before the current contract expires.

Underground operations

Freeport, along with its partner Rio Tinto (RIO), is spending a significant amount of money to convert the Grasberg mine into underground operations (GLNCY) (BHP). Despite the ongoing impasse, Freeport can’t totally suspend its investments into converting the mine into underground operations.

During the company’s 1Q17 call, Richard Adkerson, Freeport’s CEO, said “a highly skilled group of workers that are involved in this block-cave development. And if we demobilize that group, then we would be faced with a period of time to remobilize them and get them back to work.” He also added, that “to bring them back together would be a period of time measured in months rather than weeks.”

In the coming parts of this series, we’ll look at the different options that Freeport has at its disposal.


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