Freeport mine collapse will not hamper contract talks

Open pit-mining at Freeport’s Grasberg mine will draw to a close in 2016, five years before its present mining contract expires.

Freeport does not want to invest in a new underground mine unless it has a new contract with Indonesia after 2021.

It expects an expense of $15 billion to convert the complex into a huge underground mine, Reuters reported.

Contract negotiations between Freeport Indonesia and the government were deferred after a tunnel collapsed in a training classroom on May 14, killing 28 people in West Papua.

“It is tragic what happened, but Indonesia needs to be cognizant of where it needs to be going forward as an economic relevance to the world,” trade minister Gita Wirjawan told Reuters.

“It is important for a conclusion to be reached sooner rather than later because it will reflect upon the desires of both Freeport and the Indonesian government.”

The Indonesian government recently gave approval for Freeport to resume some operations at the mine.

The government looked at reopening open-pit mining at Freeport after the company submitted a letter requesting for operations to resume.

The approval came after state officials concluded their investigations, an energy ministry spokesman said.

But government officials said in early June operations cannot restart until investigations have concluded, which they predicted would take another two months.

Wirjawan is a member of the negotiating group, led by chief economics minister Hatta Rajasa.

Wirjawan wants discussions to wrap up as soon as possible, saying “I’m hopeful that there will be a meeting of minds between both sides.”

The Indonesian government wants a bigger chunk of royalty payments, a pledge on domestic processing and more divestment by foreign miners.

These have prolonged contract renegotiations.

“Things are moving in the right direction in terms of royalty distribution,” Wirjawan said.

“There are one or two things that might have been pending – one of which isthe degree to which they would be open minded in building a smelter.”

Presently, Freeport pays a copper royalty rate between 1.5 per cent and 3.5 per cent, and a fixed rate of 1 per cent for gold and silver.

Last year, Indonesia asked all miners to present plans to build refineries or smelters before raw mineral exports are prohibited in January 2014.

Freeport has always maintained it is ready to supply any new copper smelters in Indonesia with raw copper concentrates but is not willing to build smelting operations.

Indonesian government officials seem to have become more flexible over the policy in the past few months but still want to add value to resources.

Freeport Indonesia president director Rozik Soetjipto said at an event in Jakarta the Arizona-based company would agree to raise the copper royalty to 4 per cent, with gold at 3.75 per cent and silver at 3.25 per cent.

The company also proposed the Indonesian government could list it on the Jakarta exchange, which would bring the government a further 9.36 per cent stake.

In the new contract renegotiations, Freeport has to deal with decentralisation and a new democratic system that is dogged with special interests.

The tunnel collapse incident is influencing legislators, who will scrutinise the negotiations and will need to approve any new contract deal is signed by the Energy and Mineral Resources Ministry.

"Indonesia is not the same as 40 years ago," said Satya Widya Yudha, an influential member of parliament who sits on the commission for energy and natural resources. "We have to treat investors fairly, but the country is changing."

"Freeport must answer for the accident that happened," Yudha told Reuters. "They should prove if they want to stay longer, and that they're concerned about safety."

Freeport posted photos of the rescue efforts on its Facebook page, showing everything from the rescue efforts to crew praying before beginning their operations.

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