January 26, 2016 / 10:22 AM / 3 years ago

Freeport questions Indonesia's demand for smelter deposit

JAKARTA (Reuters) - Indonesia’s demand that Freeport McMoRan Inc pay a deposit for a new smelter to continue exporting copper concentrate is “inconsistent” with an agreement reached between the two sides in mid-2014, the firm’s CEO said on Tuesday.

Trucks are parked at the open-pit mine of PT Freeport's Grasberg copper and gold mine complex near Timika, in the eastern region of Papua, Indonesia on September 19, 2015 in this file photo taken by Antara Foto. REUTERS/Muhammad Adimaja/Antara Foto/Files

Indonesia’s government has said the U.S. mining giant must provide a $530 million deposit by Thursday to prevent a possible halt in copper concentrate exports from its massive Grasberg mine in the province of Papua.

A halt in exports would deal a blow to Freeport’s profits and deny the Indonesian government desperately needed revenue from one of the country’s biggest taxpayers. It would also buoy global prices of the metal that have slipped 6 percent so far this year on worries over a glut.

An aerial view shows the site of the Grassberg Mine, operated by the U.S.-based Freeport-McMoran Copper & Gold, in Indonesia's Papua province in this file picture taken November 4, 2010. REUTERS/Muhammad Yamin/Files

The U.S. firm’s six-month export permit for its Indonesian unit is due to expire on Thursday, said Didi Sumedi, an official at the trade ministry, correcting a statement earlier this week that said the deadline was Tuesday.

“Certain officials with the ministry of energy and mines have suggested that we should continue to pay an export duty and that we should make a sizeable escrow deposit to support the smelter development,” Freeport CEO Richard Adkerson said on a call following the announcement of its Q4 financial results.

“These points are inconsistent with the arrangements that we had worked with the government in mid-2014.”

Those agreements said Freeport must sell the government a greater share of the Grasberg copper and gold mine and invest in domestic processing to win an extension of its contract beyond 2021.

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Adkerson said discussions with the government were ongoing, and he was confident a new export license would be issued.

Jakarta wants the $530-million deposit as a guarantee that the Phoenix, Arizona-based company will complete construction of another local smelter. The amount would add to an estimated $80 million that Freeport set aside in July to obtain its current export permit.

Freeport, under pressure from activist investor Carl Icahn, has struggled to reduce its $20.7 billion of debt and announced in October it would cut production globally.

Usually, Freeport Indonesia produces about 220,000 tonnes of copper ore per day. About a third usually goes to its domestic smelter at Gresik, with the rest exported as concentrate.

“It is unlikely for Freeport to not pay that deposit, they certainly want to export so they will negotiate,” said Helen Lau, analyst at Argonaut Securities in Hong Kong.

A prolonged interruption to the Papua mine would affect about 24,000 people working at Grasberg, potentially leading to unrest in a region where Indonesia’s government is trying to increase economic activity.

Additional reporting by Fergus Jensen and Michael Taylor in Jakarta, Manolo Serapio in Singapore, and Nicole Mordant in Vancouver; Writing by Randy Fabi; Editing by Himani Sarkar and Katharine Houreld

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