UPDATE 2-Freeport says Indonesian unit may need to declare force majeure

Thu Feb 27, 2014 11:56pm EST

JAKARTA Feb 28 (Reuters) - Freeport-McMoRan Copper & Gold said its Indonesian unit may need to declare force majeure on copper concentrate sales if a dispute with the government over export taxes drags on for a prolonged period.

Freeport and fellow U.S. miner Newmont Mining Corp have refused to pay an escalating export tax introduced last month as part of package of new mining rules aimed at forcing miners to build smelters and process raw materials in Indonesia.

Freeport has reduced copper production at the world's fifth-biggest copper mine in Papua, and its nearby mill was operating at half its normal capacity. It has not exported copper concentrate since mid-January.

"In the event that PT-FI (PT Freeport Indonesia) is unable to resume normal operations for an extended period, we plan to consider further actions, including constraining operating costs, deferring capital expenditures and implementing workforce reductions," the firm said in a filing dated Feb. 27.

"PT-FI may also be required to declare force majeure under its concentrate sales agreements."

Executives from Freeport and Newmont, which together produce virtually all of Indonesia's copper, have been in talks with the government for weeks over the tax and the building of smelters.

A breakthrough appeared to have been reached on Monday, when Indonesia signalled it was ready to ease the export tax on firms that proved they were serious about building smelters in the country, the first rollback of its new rules.

Freeport Indonesia CEO Rozik Sutjipto has said the company would build a copper smelter, but company officials have declined to elaborate.

SUPPLY JITTERS

In Asia, smelters have begun to accept lower processing fees in order to secure material.

The latest tender for clean, standard grade copper concentrate from Chile was won for treatment and refining charges (TC/RCs) in the high $70s to low $80s per tonne, and around 8 cents per pound, two traders said.

This compares with around $105-$110 per tonne and 10.5-11 cents per pound early this month.

Global miners or trading houses pay TC/RCs to smelters to convert concentrate into refined metal, with the charges deducted from the sale price, based on London Metal Exchange copper prices. Charges typically fall when concentrate supply tightens.

The global market for refined copper is expected to be steeped in surplus this year, fed by a huge expansion of mine supply. But delays or curbs to mine shipments or could exacerbate a shortage of refined metal that has stressed global markets outside China, helping to underpin copper prices.

"When this talk started, before the ban, which was implemented on Jan. 12, everybody knew that they (producers) could hold off for a quarter or up to four months," one physical trader said.

"Smelters overbought to compensate. It's still the end of February, there's still one more month. I don't think that people should be panicking now."

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