By Allison Martell and Nicole Mordant
Jan 22 Freeport McMoRan Copper & Gold Inc
said on Wednesday it would "defend its rights" in
Indonesia against a new export tax but was confident of
resolving its dispute with the government without going to
Freeport, the world's biggest publicly traded copper
company, said the new regulations conflicted with a contract it
signed with the government of Indonesia in 1991, which stated it
would not be subject to any new taxes, duties or fees.
The company said that due to delays in getting government
approval for 2014 exports it would defer production of some 40
million pounds of copper and 80,000 ounces of gold per month
until the issue was resolved.
It made no mention of declaring force majeure to free itself
from obligations to deliver concentrate from its massive
Grasberg mine in Indonesia, although it did say it was in
"active communications" with customers.
Chief Executive Richard Adkerson said he did not want to
speculate on next steps because he is confident Freeport will
reach an agreement with the government.
"We have a strong desire not to go to international
arbitration," he said. "The much more attractive course of
action would be ... to find a mutually agreeable resolution to
it with the government."
Adkerson was speaking on a call with analysts and investors
to discuss Freeport's fourth-quarter results. Earnings at the
U.S.-based miner, which also has large oil and gas operations,
fell from a year ago on weaker metals prices.
Freeport's Grasberg gold and copper complex, located in
Indonesia's Papua province, is one of the world's largest copper
and gold deposits. In 2012, Freeport's Indonesian operations
contributed 23 percent of its group pre-tax income.
Morningstar analyst Daniel Rohr said that over the years
Freeport, which has been active in Indonesia since the 1970s,
had always managed to resolve disputes there more or less
"Each side gives a little bit. I expect that's going to be
the case here," Rohr said.
The Indonesian government on Jan. 11 gave Freeport and
fellow miner Newmont Mining Corp a reprieve from a
controversial mineral ore export ban, but then surprised the
U.S.-based majors by imposing an export tax.
Freeport had previously paid no export duties on concentrate
shipments. As a result of the new tax, Freeport could pay around
$5 billion more in taxes over the next three years, according to
Indonesia's new policies are meant to force miners to
process more material in country and narrow a current account
deficit that has battered Indonesia's currency.
Under their current contracts, Freeport and Newmont pay
corporate income taxes of 35 percent plus royalties and other
The new export tax, starting off at 25 percent, is set to
rise to 60 percent by the end of 2016 before exports of
concentrate are banned from 2017.
Under a joint venture agreement, Rio Tinto
gets a 40 percent share of the output from Grasberg above
certain levels until 2021, and 40 percent of all production
PRICE SLIDE HURTS
Shares in Freeport fell 2.6 percent to $34.34 on Wednesday
afternoon, alongside other major mining companies.
Earlier, the company reported a drop in fourth-quarter
earnings following a decline in copper and gold prices. Net
income fell to $707 million, or 68 cents a share, from $743
million, or 78 cents a share, a year earlier.
Excluding unrealized losses on oil and gas derivatives and
other charges in the fourth quarter, earnings would have been 90
cents a share.
RBC Dominion Securities analyst Fraser Phillips said in a
note to clients the adjusted earnings topped his expectations,
partly because of better-than-expected mining costs, and sales
of gold, oil and gas.
"Results were pretty good. Production figures were in line
with what they said. Costs, particularly on the mining side,
were pretty great," Rohr said.
Freeport said it expects to sell about 4.4 billion pounds of
copper, 1.7 million ounces of gold and 60.7 million barrels of
oil equivalents in 2014. The forecasts assume Indonesian
operations running at normal levels.
Revenue rose to $5.89 billion from $4.51 billion, boosted by
the company's recent oil and gas acquisitions.