Freeport-McMoRan has announced that its subsidiary PT Freeport Indonesia (PT-FI) has failed to reach an agreement with Indonesia’s Government over concentrate exports and associated matters relating to the contract of work (CoW) after five years of talks.
Last week, PT-FI issued a formal notice of an impending dispute to the government, alleging multiple breaches of the CoW.
In January and February, the Indonesian Government implemented regulations that required PT-FI to terminate its CoW and convert to a special licence (IUPK) to export its concentrates.
PT-FI argued with the government that the new regulation violated the CoW and emphasised its unwillingness to terminate its current deal.
The company also stated that it would only terminate the deal when the CoW is replaced with what it considers to be an acceptable form of agreement, ensuring fiscal and legal assurances for the company and supporting its investment plans in the country.
With the new regulations, PT-FI is currently unable to export concentrates.
Due to the ongoing stalemate, the company has decided to reduce production by nearly 60% and suspend investment in Papua, Indonesia. It is also proceeding to implement cost savings plans by reducing its workforce and spending with local suppliers.
Freeport-McMoRan president and CEO Richard Adkerson said: “Despite extensive efforts to reach an agreement with the government, we have been unsuccessful in achieving a resolution that would avoid the negative impacts for all stakeholders, especially for our workforce and the local economy.
“We are simply asking the government to honour our legally binding contract. We urge the government to honour the contract and demonstrate that the country remains open for foreign investment.
“This would be in the best interests of all stakeholders, including the government of Indonesia, our large workforce, the local community, local suppliers and Freeport’s shareholders.”
First quarter production has been adversely affected by the suspension of concentrate exports, along with the temporary outage since 19 January at PT Smelting.
The company estimates a fall of approximately 17% in copper and 59% of gold in its consolidated first quarter sales.