Freeport & Newmont Pay $140m Guarantee for Smelters Development

Jakarta Globe on 09:50 pm May 30, 2014

Jakarta. Freeport Indonesia and Newmont Nusa Tenggara, two of the country’s largest copper miners, plan to transfer as much as $140 million to an escrow account determined by the government, as part of their commitment to build in-country refining facilities, according to an Energy and Mineral Resources Ministry official.

“They planned to wire the money next Monday to a Bank Mandiri [account],” said R Sukhyar, director general for coal and mineral resources at the ministry.
Freeport will wire $115 million, while Newmont will account for the remaining $25 million, Sukhyar added.

The government has demanded Freeport and Newmont to put up a deposit guarantee after both failed to meet the self-imposed deadline for in-country refining requirements, as stated in the country’s 2009 Mining Law.

Officials then roll-out punitive export duties and a more stringent requirement for companies to acquire a permit to export unrefined minerals, which stood at more than $5 billion last year, but is effectively at a standstill since then.

Both miners had already processed their copper into a byproduct called concentrates but are still short of the refining requirement.

“For concentrate producers, the deposit will be less than 5 percent of the smelter investment,” Sukhyar added.

The new coordinating minister for the economy, Chairul Tanjung, hosted a meeting on mineral policy on Wednesday, at which energy and mineral resources minister, Jero Wacik, and industry minister, MS Hidayat, were also in attendance;

The government had set an export quota of 850,000 tons of copper concentrates worth around $1.5 billion for both Freeport and Newmont, but will not issue the export permit before both miners agree with  terms of the ongoing contract renegotiation, according to Chairul.

Rozik Soetjipto, president director of Freeport Indonesia, said after the meeting that the miner will team up with a state-controlled counterpart, Aneka Tambang, to build a copper smelter in Gresik, East Java. The project is schedule for a groundbreaking in the second semester this year.

The facility is expected to cost some  $2.3 billion and produce 400,000 tons  of copper cathodes from 1.6 million tons of copper concentrates.

Newmont will also participate in the project by supplying its concentrates to the facility, according to its president director, Martiono Hadianto.

Industry Minister, MS Hidayat, said the government had no plans to annul or revise the regulation on punitive export duty, but will introduce a separate rule that would cut tariffs as part of an incentive package. The discounted rate would be determined by the progress made by each smelter project, he added.

“If the smelter is completed in 2017, then the duty will be zero, but if the company fails to meet the deadline, then the government will increase the export tariff  and confiscate the deposit.”

Newmont is desperate to obtain an export permit or 80 percent of its 4,000 employees will face the risk of being sent home, according to Martiono. He added that Newmont would need the permit by the end of May.

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