Industry Trend Analysis - Grasberg Dispute To Weigh Heavily On Indonesia's Copper Sector - APR 2017

BMI View: Indonesia ' s copper output growth will decline in 2017 as the dispute between Freeport Mc-Moran Inc and the Indonesian government regarding new regulations for foreign mining companies rolls on. Regardless of the outcome of negotiations, Freeport will hold on to the Grasberg mine as it is an important part of its portfolio, especially as prices of gold and copper are set to increase over the years to 2021.

Indonesia's copper output growth will decline in 2017 as the country's largest miner, Freeport Mc-Moran Inc contemplates international arbitration with the Indonesian government over a recent change in mining regulations. In January 2007, the Indonesian government moderated the mineral ore export ban where the temporary export permits for copper concentrates were extended provided miners adhered to certain conditions. Part of the conditions involved a strong resource nationalism twist as foreign miners exporting copper concentrates now have to switch from long-term contracts of work (CoW) where regulations were more favourable to a mining licensing system (IUPK) in which they must agree to gradually divest at least 51% stakes in their local operations to Indonesian entities. This came as a hard blow to Freeport, since the company was previously required to divest only 30% of ownership to local entities. Since January 12, Freeport has halted exports of copper concentrates from the Grasberg mine in Papua, refusing to accept the sudden change in policy. The company has started scaling back its operations and suspended more than a thousand workers, while negotiations to afford rights and protections to the IUPK similar to the existing CoW are ongoing with the Indonesian government, who is adamant on its decision.

Freeport To Put Up Strong Fight

Grasberg Dispute To Weigh On Copper Production Growth
Indonesia - Copper Mine Production & Production Growth
e/f = BMI estimate/forecast. Source: BMI Calculation/USGS

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