Freeport Indonesia expects the dispute over a ban on concentrate exports from its Grasberg copper mine to be resolved but reserves the right to commence arbitration to enforce its contract and seek damages, CEO Freeport-McMoRan president and CED Richard C. Adkerson said Monday.
The Indonesian government banned the export of concentrates in mid-January as part of moves to encourage the construction of smelting and refining operations in the country.
Freeport-McMoRan warned at the time that this could cut production at its Grasberg copper mine by up to 40%. Grasberg's copper production totaled 1.06 million mt in 2016, S&P Global Platts reported earlier.
"There will be "severe unfavorable consequences for all stakeholders, including the suspension of capital investment, a significant reduction in domestic purchases of good and services and job losses for contractors and workers if we are forced to adjust our business costs to match constrained production," Adkerson said in the statement.
The government is in negotiations with Freeport to "forfeit" its 1991 contract of work in return for an "uncertain" operating license and short-term approval to export, he added.
The government's January mining decree allows mining companies to keep exporting mineral concentrates until 2022 by converting their contract of work to a special mining permit and meeting a 51% divestment obligation, but only if they commit to building a domestic smelter.
"A contract cannot be unilaterally altered or terminated even by passage of subsequent law and regulation," Adkerson said.
"We had discussed with the government having a six-month period to negotiate this investment agreement. However, government decrees now mandate that our contract be terminated to obtain permission to export, which we cannot accept," he said.
Indonesia's Energy and Mines Minister Ignasius Jonan said in a statement Saturday that the government honors any agreement that had been made previously. Any miner with a contract of work could continue their business and not be obliged to convert to special mining agreement as long they agreed to build a smelter domestically, he said.
"Regarding a discourse of Freeport to bring this case to arbitration, it's a right for any parties, but the government expects to not face anyone legally as it is not good for a partnership," Jonan said.
"But it's better than using layoffs as a means to pressure the government," he added.
