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Reading Freeport’s Indonesia Timeline

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Updated

Freeport’s Indonesia issues

Freeport-McMoRan (FCX) discovered the Grasberg mine in 1988 and began open pit mining at the site two years later. In 2014, Indonesia banned the export of unprocessed ores from the country.

However, Freeport had signed an MOU (memorandum of understanding) with the Indonesian government (EIDO). Under the MOU, Freeport had to agree to higher royalties, the divestiture of an additional stake in its Indonesia operations, and the establishment of another smelter (TECK) in Indonesia. The company has since then managed to export copper concentrates from Indonesia under six-month temporary export permits.

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Export ban

However, earlier in 2017, Freeport’s export permit was not renewed when it expired in January. As a result, the company was barred from exporting copper concentrates (SCCO) (GLNCY) from Indonesia for almost three months. Indonesia revised its mining laws this year. The new guidelines required Freeport to convert its CoW (contract of work) into a special operating license referred to as an IUPK.

Freeport was also required to construct a smelter in Indonesia within five years and divest 51.0% of its holdings to the Indonesian government or its citizens.

However, the company did not agree to some of these terms. According to Freeport, it wanted an investment stability agreement providing “the same rights and the same levels of legal and physical certainty as contained in the Contract of Work.”

Divestment valuation issue

Another key contention between Freeport and Indonesia was related to the divestment valuation. While Freeport was not entirely opposed to divesting an additional stake, the two sides were not on the same page when it came to the divestment valuation. This issue has been left unaddressed in the current framework.

We’ll discuss this valuation issue further in the next part of this series.

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