Short-term Grasberg agreement appears close

Progress is being made in negotiations between the Indonesian Government and Freeport McMoRan Inc over the future of the Grasberg Copper Project in Papua province. Indonesia has apparently agreed to a new short-term operating permit but key issues still need to be resolved.

Reuters reported earlier this week that Indonesia had agreed to a special mining permit with Freeport that will grant Freeport operating rights for Grasberg through 2021.

However, Energy and Mineral Resources Ministry secretary-general Teguh Pamuji said the permit had not been signed yet. He said once that was finalised, Freeport would be allowed to apply for two 10-year extensions to the mining permit for Grasberg beyond 2021.

Freeport and Indonesia have been locked in a long-running and costly dispute over the future of Grasberg, which is the worlds second biggest copper mine.

The parties have until October to reach an agreement as that is when the Grasberg export permit expires.

Teguh Pamuji said there were still four key areas the two sides hoped to resolve:

They must come to terms on the requirement for Freeport to divest a 51% stake in its Indonesian unit;

They must discuss a fiscal stability agreement guaranteeing tax and royalty payments that Freeport wants before agreeing to give up its current contract;

They need to hash out how the operations will be extended past the 2021 expiry of the special permit; and

Construction of a smelter at the Grasberg site.

There is no option, Energy and Mineral Resources Minister Ignasius Jonan told Reuters in an interview on Tuesday in Houston, referring to the divestment and construction of a smelter. If they dont, they cannot export.

According to Reuters, Freeport CEO Richard Adkerson warned this week that the company was prepared to take the dispute to arbitration if negotiations failed, but neither party wanted that outcome.