Freeport asked to Build Smelter in Papua, not in Java

JAKARTA - The government has asked Freeport Indonesia to build a smelting facility in Papua, where the company’s giant copper and gold mine is located, instead of in Gresik, East Java, as it initially planned.

The Energy and Mineral Resources Ministry’s director general for mineral and coal, R. Sukhyar, said in Jakarta on Tuesday the Pa-pua smelter would encourage industrialization in the area.

“If we want to improve this sector, we will also need to reduce Papua’s dependency on Freeport’s mining business. Therefore, we will need to see other developments there,” Sukhyar said.

He added that Freeport Indonesia has to complete the Papua smelter development by 2020. The smelter development, according to Sukhyar, will also increase the refining capacity to absorb growing concentrate supply due to the company’s underground mining development.

Freeport Indonesia, a subsidiary of US copper giant Freeport McMoRan Inc., contributes around US$500 million in tax, royalty and other financial supports to the country in 2013, according to its website. It also reported a total contribution of $15.2 billion during 1992-2013 period. In addition, it also disburses money for community development.

Freeport Indonesia starts its operation in Timika, Papua, under a contract of work sealed in 1967. The company signed a memorandum of understanding (MoU) to renegotiate its work contract as the government tries to adjust several terms in the contract with regulations under the 2009 Mining Law.

Under the MoU, which highlights Freeport Indonesia’s principal agreement over amendments to its contract, the company agrees to comply with the Law, including the obligation to establish a smelter in Indonesia to process its concentrates. Considering infrastructure facilities and power supply availability, the company has picked Gresik as the location of the new smelter.

The company has also deposited $115 million as a guarantee that it will finish the smelter development. The guarantee has convinced the government to allow the company to continue exporting copper concentrate until 2017.

However, to date — five months after the MoU was sealed — the progress of the Gresik smelter remains unclear.

“There are no reports of progress [from Freeport Indonesia] to us. They haven’t decided the exact location in Gresik. Also, there is still no feasibility study,” Sukhyar said.

He added that the government would give no relaxation to the 2017 deadline for Freeport Indonesia.

At present, Freeport processes a small part of its copper concentrate in a smelter in Gresik it jointly owns with several Japanese companies including Mitsubishi.

Starting on Jan. 12, the government bans the export of mineral ores. However, following an outcry of major mining companies, it allows exports of the concentrates — which are considered to be semi-processed products instead of ores — until 2017.

Freeport Indonesia president director Rozik Soetjipto said his company was still working on the Gresik smelter development plan.

“We are still working on the basic engineering. For locations, there are alternatives. However, the location will likely in Gresik,” Rozik said.

Failure to make significant progress for the Gresik smelter will make Freeport loses the permits to export its concentrates. The company’s current permits for copper concentrate exportation will only be valid for six months, which is until January.

“Under six month assessment, smelter development must reach at least 60 percent of its target. If it is missed, we will stop the exports,” Sukhyar said. [TheJakartaPost]