Papua mine talks still deadlocked 

Freeport-McMoran is encouraged by talks over its giant Grasberg copper and gold mine in Indonesian Papua, according to chief executive Richard Adkerson said.

While conceding that much more progress was needed, Adkerson said talks would continue to address new mining laws introduced this year to give Jakarta greater control over the archipelago’s mineral resources.

In August a deal seemed closer when Freeport agreed a framework to divest 51 per cent of the subsidiary that owns the mine to Indonesian investors in return for retaining operational control at Grasberg.

“I can tell you that we are working positively and amicably with the representatives of the government,” the CEO said.

“At the same time, we are going to be relentless in representing the interest of our shareholders.”

Meanwhile, the copper price has risen almost 30 per cent to above US$7,000 a tonne this year as global economic growth has increased demand. Several temporary closures at major copper mines, including Grasberg, have boosted the price.

Arizona-based Freeport, the world’s second-biggest copper producer, is addressing the Indonesian policy that requires mining firms to relinquish a 51-per-cent stake and pay higher taxes and royalties.

But there have been few tangible advances since the framework agreement on Grasberg was announced in August and Freeport shares fell 3.3 per cent yesterday (Wednesday) to US$14.73.

Freeport maintained this year’s sales forecast of 3.7 billion pounds of copper and 1.6 million ounces of gold, after twice lowering the estimate.

After sudden downturn in prices, mining firms are starting to eye growth but are mindful of upsetting investors who saw the industry squander billions of dollars on extravagant deals and projects during the “commodities super-cycle”.

“Negotiations in Indonesia matter more than anything else for now,” Jefferies analyst Christopher LaFemina told clients.

“While we are encouraged by Freeport’s operational performance, progress (or lack thereof) in the company’s ongoing negotiations with the government of Indonesia is clearly critical.”

The two sides have not be able agree on a number of key issues related to the proposed sale of assets, including valuation, timing and structure. If an agreement is not reached it will throw into doubt plans for a multibillion-dollar expansion at Grasberg.

Freeport said its Grasberg stake would drop first to 49 per cent and then to just 29 per cent under the divestment and joint venture plan.

“While our interest in the participation in Grasberg would be reduced, we would be receiving cash from that interest, which would reduce our exposure to Indonesia,” Adkerson told the media. “There’s positive and negatives to that.”

A bridge to the Grasberg mine. Picture credit: Flickr