Shareholders are pressuring miner Freeport-McMoRan to stand up to the Indonesian government over changes the Southeast Asian country wants to make in the US miner’s contract, Freeport’s chief executive officer said on Monday (27/02).
Rio Tinto, which is a partner in Freeport’s massive Grasberg copper and gold mine in Indonesia, is also supportive of Freeport’s tougher approach toward Jakarta, CEO Richard Adkerson said.
In some of his strongest language yet on the issue, Adkerson said the new regulations sought by Indonesia were “in effect a form of expropriation of our assets and we are resisting it aggressively.”
“Many of our shareholders feel that we have been too nice. Now we are in the position of standing up for our rights under the contract,” Adkerson told a mining conference of institutional investors.
The underlying concern over the dispute are the populist politics by the Jokowi administration reflective of the nationalistic ambitions to nationalize the foreign investments in mining and other commodity industries.
Many industry executives from a wide range of commodity industries see the latest threats by the Jokowi administration officials as a dangerous shift in leftist leanings of the administration. “The true color of the administration is yet to emerge”, added one executive when interviewed for this article.
Luhut Panjaitan, former security czar and now Minister for Maritime Affairs, was quoted in Tempo that the government is ready to take over the management of PT Freeport Indonesia through a state-owned mining company. “The government can; we have Inalum,” he said on February 26, 2017.
The government will take over Freeport mine if it wins an international arbitration. “Or [taken over by] a consortium,” he said. A repeat from the Kalimantan Prima Coal (KPC) take over resurfaces still on the mind of many Indonesia watchers.
Freeport had held talks with large shareholders but did not name them. Freeport’s third-biggest shareholder is activist investor Carl Icahn, who holds around 7 percent of its shares. Icahn has been appointed a special adviser to US President Donald Trump.
Freeport, the world’s biggest publicly listed copper producer, warned last week it could take the Indonesian government to arbitration and seek damages over a contractual dispute that has halted operations and exports at Grasberg, the world’s second-biggest copper mine.
The dispute, which centers around the sanctity of Freeport’s 30-year mining contract, comes as the Indonesian government seeks to squeeze more revenue out of the mining industry by shaking up regulations over foreign ownership and ore processing.
The two sides have 120 days to settle their differences before heading to arbitration. “The polite approach that we have had in the past, if we go to arbitration, is going to be replaced with tough lawyers,” Adkerson said.
He added that he hoped the dispute could be resolved cooperatively although the Indonesian government has so far “responded aggressively through ministers.”
Freeport’s inability to export copper since mid-January, coupled with a strike at BHP Billiton’s Escondida in Chile, the world’s biggest copper mine, has pushed copper prices to 20-month highs of $6,204 a ton on the London Metal Exchange this month.
With the foreign investment provides foreign revenues to the Indonesian state, the history of nationalized mining industries by the socialists regimes in South America have undermined the value and has not improved the national development. Bolivia is one of the many failed examples.
In the face of the export halt, Freeport last week said it was proceeding with its plan to reduce production at Grasberg by about 60 percent, make significant cuts to its workforce and suspend investments in the province of Papua.
Despite the tough talks by the Jokowi administration no plans are forthcoming by the administration in Jakarta to support the loss of expertise and income for the thousands of families who depend on jobs with the mining conglomerate.