Freeport may start Grasberg arbitration

Freeport-McMoRans Indonesian unit, PT Freeport Indonesia (FI), has submitted a notification to Indonesias mining ministry describing breaches and violations of its contract of work by the government. The dispute with the government has resulted in the company declaring force majeure at its Grasberg Copper Project in Papua province.

Freeport hopes to resolve the dispute with the government, but has also reserved the right to start arbitration against the government and to seek applicable damages.

The company warned of severe unfavourable consequences for all stakeholders, including the suspension of capital investments, a significant reduction in domestic purchases of goods and services, and job losses for contractors and workers as we are forced to adjust our business costs to match constrained production.

Freeport has been negotiating with the Indonesian government after halting its exports of copper concentrate due to new mining rules. Last Friday it said it could not meet contractual obligations for copper concentrate shipments from the giant mine following a five-week export stoppage.

On Saturday PT FI announced that its chief executive Chappy Hakim had resigned after the parent company had declared force majeure on copper concentrate shipments from Grasberg.

Chappy Hakim, a former air force chief, had only been in the job for a few months. Freeport Indonesia hoped he would be able to use his political connections to help the firm navigate its way through a period of regulatory uncertainty.

I have decided it is in the best interests of PT FI and my family to step down from my duties as president director while continuing to support the company in an advisory role, he said in a company statement.

The new rules require Freeport to pay taxes and royalties it was previously exempt from and divest up to 51% of its Indonesian unit, an increase from a previously set 30%. To date, it has divested 9.36%.

Mining Minister Ignasius Jonan on Saturday said Freeport had refused the governments offer of a six-month transition period in which the company can negotiate terms for its new mining permit.

Freeport could begin exporting again if it agreed to the transition period, he said. His ministry on Friday recommended that Freeport be allowed to export 1.1 million tonnes of copper concentrates until February 16, 2018.

The recommendation was conditional on Freeport accepting the special permit, said the parent companys spokesman Eric Kinneberg, repeating that the miner would only agree to a permit that provided the same fiscal and legal protection as currently.

Ignasius Jonan said that bringing the dispute to an arbitrator could hurt the relationship between the company and the government. But it would be a much better step rather than always using the issue of firing workers as a tool to pressure the government.