Freeport Feels Pressure to Build Underground Facility
Muhamad Al Azhari
Freeport Indonesia is in a race against time to build a massive new underground mining facility, ahead of the 2017 depletion of surface resources at its Papua mine site, its new chief executive said on Tuesday.
The local unit of US-based Freeport-McMoRan Copper & Gold is planning an investment of between $16 billion and $18 billion to shift the focus of its operations at Papua’s Grasberg, the world’s largest recoverable reserves of copper, underground because open-pit mining will eventually be uneconomical.
“Until now, 75 percent of our production came from surface mining and 25 percent from the underground mine,” said Rozik B. Soetjipto, the new president director of Freeport Indonesia, adding that the open pit resources would be depleted “sometime between 2016 and 2017.”
Rozik made the comments during a visit to BeritaSatu Media Holdings, the publisher of the Jakarta Globe.
Rozik, a director general at the Energy and Mineral Resources Ministry from 1998 to 1999, said Freeport’s 1991 contract would expire in 2021, but the government had included provisions for two decade-long extensions. Freeport’s first contract for the site was signed in 1967.
“Investment thus far is already significant,” said Sinta Sirait, Freeport’s chief administrative officer. “There is another $16 billion to $18 billion to take us to 2041, [but] Freeport needs to have more commitments from the government.”
The company’s plans include the Grasberg Block Cave underground mine, which contains more than one-third of its reserves in Indonesia. Once the Grasberg mine’s open-pit operation ends in the next five years, it is expected to produce 160,000 tons of ore per day.
Freeport spent $309 million last year. That money came out of the $4.2 billion in investment, planned for the Grasberg Block Cave from 2008 to 2021.
The release of details on the plan comes as Freeport enters into delicate negotiations with the government over the terms of its contract.
On the negotiating table are crucial issues, including government revenue and royalty fees, miners’ obligations to process the raw materials in Indonesia, their obligation to divest a stake to local owners, the size of the mining concession areas and the use of local content in operations.
Hatta Rajasa, the coordinating minister for the economy, said last month that royalty fees paid by mining companies, especially Freeport, were not big enough. He said Freeport only paid the government a 1 percent royalty on its total gross sales.
The contract talks also come as Freeport grapples with labor and security problems.
On Monday, Bloomberg quoted a union official as saying that workers at the Grasberg mine would resist efforts to resume production after operations were halted late last month.
“We are still very optimistic that it is just a matter of productive dialog,” Sinta said. “If we are not producing, everybody loses.”
Last year, Freeport Indonesia’s production was hit hard by a prolonged strike prompted by a lingering pay dispute. It produced 882 million pounds of copper, which was down 32 percent on 2010, and 1.4 million ounces of gold, down 30 percent).