Tuesday, January 15, 2013

1) Political, Shareholder Woes Trip Up Mining Giant in Indonesia

1) Political, Shareholder Woes Trip Up Mining Giant in Indonesia

2) MSG prepares for Silver Jubilee

3) Top End's Mission Jakarta


1) Political, Shareholder Woes Trip Up Mining Giant in Indonesia
John Mcbeth - Straits Times | January 15, 2013
Freeport-McMoRan Copper & Gold has been scrambling to reassure investors that its controversial diversification into oil and gas does not mean it is facing problems extending its four-decade-long control over Papua province's hugely profitable Grasberg copper and gold mine.

"Resource nationalism is always a concern when we operate in the countries we do," chief executive and president Richard Adkerson said in a conference call last month.

"But there is no development in Indonesia or Africa that is driving us to do this."

The world's fifth biggest mining company is battling political headwinds ahead of Indonesia's 2014 elections in efforts to negotiate a 20-year extension to its contract of work, which expires in 2021.

Freeport claims it is entitled to two 10-year extensions under wording in the existing 1991 contract. But the Indonesian government is insisting that it conforms with the 2009 Mining Law by converting the contract to a business license, which does not carry the same degree of certainty.

Adding to that uncertainty, the constitutional court is hearing a challenge to the mining law by the same nationalist lobby which recently won a decision forcing Jakarta to restructure how it regulates the oil and gas industry.

Freeport has to get things settled before it dives much deeper into a US$16 billion program which will convert the Grasberg from a vast open pit into the world's biggest underground operation, with electric rail and 900 km of tunnel.

The company is already in negotiations with the government, but given the political atmosphere, it is unlikely to reach any deal until after the 2014 elections — and then with an entirely different set of ministers.

Adkerson has sought to sweeten the pot by offering to list subsidiary Freeport Indonesia on the Indonesia Stock Exchange, correctly noting that it might help to put the company in a more positive light.

The contract extension aside, the Grasberg mine has other problems. Freeport was forced to halt operations for the last three months of 2011 in the face of an unprecedented strike involving 8,000 of its workers.

With the labor agreement coming up for its biennial review in March, Freeport is now bracing itself for another round of union demands that could cause further disruptions in production.

A steady stream of foreign security experts have been advising on the best way to guard the mine, especially the 100 km road linking Grasberg to the lowland town of Timika which has been the target of frequent sniper attacks.

Because of its past association with the Suharto regime and environmental and human rights infractions, real, imagined and invented, Freeport has become the foreign company most Indonesians love to hate.

Now it is in trouble with its big shareholders as well. "This is one of the worst tele-conferences I've ever heard," snapped Evy Hambro, managing director of investment firm BlackRock, as executives sought to justify the planned acquisition of two oil exploration firms.

The uproar stems from an apparent conflict of interest in a $20 billion deal to buy McMoRan Exploration and Plains Exploration and Development, which will cost the Arizona-based mining giant about two-thirds of its market cap.

Because of the way it is structured, the deal did not need shareholder approval, an issue that infuriated BlackRock and other investors given management's financial interest in McMoRan Exploration and a 17 percent drop in the value of Freeport's stock.

McMoRan's shares plunged 35 percent last November because of problematic flow tests at its deepwater Davy Jones site in the Gulf of Mexico, which it claims has the potential of being the biggest oil discovery in a decade.

Adkerson, who is also co-chairman of McMoRan, talked about the "complexities" resulting from overlapping management, with six directors holding dual board membership in the two companies.

In essence, Freeport is going back to its roots. Co-founded by geologist James "Jim Bob" Moffett in 1969, McMoRan Oil merged with Freeport Minerals in 1981 and later sold off its oil and gas assets to help fund the development of the Grasberg mine.

New Orleans-based McMoRan was spun off in 1994, but the company continued to be run by the hard-charging Moffett, the concurrent chairman at Freeport and the guiding force behind the latest move.

Recounting the company's history of risk-taking in remote Papua, which stretches back to the late 1960s, Moffett basically asked shareholders to trust him. "We know how to swing for the fences," he rasped. 

"We're home-run hitters."

Described by Adkerson as the firm's "cornerstone asset", and by Moffett as "the best mine in the world", the high-altitude Grasberg mine contributes to 31 percent of Freeport's revenues — even if the strike did make 2012 an exceptionally bad year.

But that dependency is expected to drop to 23 percent as a result of a deal that Adkerson calls an "add-on and not a diversion", with 74 percent of future revenues expected to come from mining and 26 percent from what he says will be self-funding oil and gas operations.

The acquisitions create a resource conglomerate worth $60 billion, inclusive of debt, and mark a major shift in strategy for a company which used its Grasberg riches to gobble up Phelps Dodge, a firm much bigger than itself, in 2007.

With 10 operating mines in North and South America and Africa, the world's biggest copper producer and fifth biggest miner has been looking for opportunities outside its core business, worried about the lack of new world-class copper deposits.

Their eye firmly on the short term, many shareholders are clearly not convinced that getting back into oil and gas is the way to go.

Reprinted courtesy of The Straits Times


2) MSG prepares for Silver Jubilee

(sitting left to right) PNG PM Piais Wingti, Vanuatu PM Walter Lini and Foreign Minister of Solomon Islands Ezekiel Alebua at the signing of the Principles of Cooperation Agreement between MSG Independent States in Port Vila, Vanuatu (March 14,1988).
The Melanesian Spearhead Group (MSG) Secretariat is liaising closely with the Vanuatu Government, key stakeholders including Foreign Affairs and the Vanuatu Police Force in advanced preparations for top Melanesian officials who are invited to the MSG Silver Jubilee celebrations two weeks away.
The high caliber guests who will grace the occasion comprises of current Prime Ministers, former prime ministers and instrumental leaders including surviving founding pioneers who are signatories in the Principles of Cooperation between Independent States of Melanesia in Vanuatu’s Constitution building 25 years ago on March 14, 1988.
This is the first agreement which gave give birth to the idea of strengthening Melanesian solidarity and cooperation and result in the body which exists today.
“The official launching of the MSG Silver Jubilee celebrations throughout Melanesia will be held in Port Vila on Monday, January 28,”Officer-in-Charge of the MSG Secretariat and Chairman for the MSG Silver Jubilee Organising and Planning Committee, Jean Pierre Nirua, announced when he revealed the above.
“In the absence of Commodore Frank Bainimarama, Vanuatu Prime Minister Sato Kilman will officiate the grand launching ceremony under the theme celebrating , ‘25 years of Melanesian solidarity and growth’, to kick start the beginning of the celebrations throughout Melanesia.
“This is a day to remember for the people of Melanesia so we will invite our Leaders, MSG pioneers and founders and our friends of Melanesia near and far to join us in marking this special day not just to remember the hard work of our Leaders, Senior officials and Governments but also to continue to embrace and enjoy our solidarity and cooperation for the many more years to come.”
Mr Nirua explained an initiative by the organising committee and endorsed by the Leaders’ Summit in 2012 that will enable all members to celebrate this Silver Jubilee in their respective countries as part of the regional celebration program.
“MSG members such as the FLNKS of Kanaky, New Caledonia, Fiji, Papua New Guinea, Solomon Islands and Vanuatu will also, from February to June 2013, be hosting their one-week Melanesia celebrations,” he said.
“Papua New Guinea will hold their Melanesia Week in February, Vanuatu in March, Solomon Islands in April, Fiji in May and the people of Kanaky in June 2013 when the Leaders’ Summit is scheduled to be hosted by FLNKS.
Vanuatu, the host country of the, MSG Secretariat in Port Vila will host its Melanesia Week in March –the anniversary date of the birth of the MSG which falls on March 14,2013.
This, he said, will mark 25 years of the signing of the Principles of Cooperation between Independent States of Melanesia, the first agreement to give birth to the idea of strengthening Melanesian solidarity and cooperation.
Mr Nirua revealed as part of the launching ceremony in Vanuatu a symposium under the theme “Leaders’ Toktok-Tales from Our Founders and Pioneers” is being organised for founding leaders of the Melanesian Spearhead Group and current leaders of the MSG to share their perspectives on various key topics in Melanesia to highlight the history and future of Melanesian cooperation that began 25 years ago on 14 March 1988.
“This is an exciting time for our people and our leaders as the symposium will give opportunity to leaders of Melanesia to share with the people of Melanesia the vision and ideas that gave birth to the strong relationship and relations enjoyed by MSG member countries,” he said.
“This will also give opportunity to leaders to share their perspectives on issues that are of common interest to the people and Governments of Melanesia.”
The launching ceremony will see the official release of MSG souvenirs and memorabilia to mark 25 years of Melanesian solidarity and growth, the unveiling of the Melanesian carving by member country carvers and a public luncheon for all.
Nirua advised the official program will soon be circulated to all member countries, governments and the people of Melanesia.
He expressed his satisfaction that the committee for the special event, comprising of government officials and key stakeholders are planning to stage a memorable launching at the Independence Park.


3) Top End's Mission Jakarta

EACH morning, Karna begins his working day with a trip to one of Indonesia's "wet" markets to procure a supply of beef.
The 52-year-old bakso seller then wheels his wooden cart, remade three times since 1950, to the same spot on the Indonesian capital Jakarta's busy streets it has occupied for more than half a century.
From there he plies a brisk trade, dishing out four bakso balls - flavoured mixtures of beef and tapioca - and two pieces of tofu with every steaming bowl of broth and noodles sold, until his supply is gone.
Indonesia has 3.5 million bakso ball sellers. Few families regularly eat beef at home, and about 70 per cent of all beef consumed in the country is estimated to be through bakso carts such as Karna's.
However, in recent months, as the price of beef has almost doubled in the wake of live cattle import restrictions, Karna's morning ritual has become harder.
"The price is high and it's hard to find the meat in the market," he says. "We have to reduce the amount of meat we put in every ball, and make the balls smaller.
"It also means I give less money to my wife, so we eat less meat."
Indonesia has stated ambitions to increase beef consumption tenfold, from its present average of below 2kg per person annually to about 20kg. Australians, by comparison, annually consume an average of 43kg each.
Trade restrictions imposed in the name of self-sufficiency, and severely tightened following a snap five-week live-exports ban by Australia in mid-2011, have benefited small Indonesian farmers, say observers, but have made life hard for many others.
Vast feedlots once teeming with Australian cattle stand almost empty; at least one major importer has taken the first steps towards moving to China. Restaurateurs and hoteliers complain of a shortage of affordable beef. Meanwhile, north Australian cattle producers languish amid declining property values, high debt and predictions of a tough year ahead.
It is a situation the Northern Territory's Chief Minister, Terry Mills, hopes to change by reviving the sort of diplomatic ties between the Top End and Indonesia under which the cattle industry flourished during the 1990s.
"We have an obligation, by virtue of our location and our history, to provide national leadership on engagement with Indonesia," Mills said on a visit there in December. "Darwin is closer to Jakarta than Canberra is, in more ways than distance."
More than two decades ago, before the then Labor prime minister Paul Keating declared that "no country is more important to Australia than Indonesia", the Territory signed the first of several memorandums of understanding with Indonesia under which trade and bilateral relations grew at a time when Jakarta's ties with Canberra were comparatively sour.
By rejuvenating those ties, which have lapsed over the past decade or so, Mills hopes to establish Darwin as the gateway and focus of Australia-Indonesia relations - putting into practice the vision echoed in Julia Gillard's recent Australia in the Asian Century white paper.
In doing so, he and his team argue they can kick off a wave of regional development and, potentially, achieve what the federal government has so far failed to do by getting live cattle trade restrictions eased.
"Australia should be looking north," Mills says. "The NT is leading the nation." He has already appointed Wahyu Dewanto, former second-in-command at Indonesia's Hanura party, as the Territory's Indonesia representative, and will open an office in Jakarta.
The Territory and Indonesia, separated at their closest point by just a few hundred kilometres of ocean, have long found themselves natural trading partners. Centuries ago Macassan sailors frequented the north Australian coast; there they met local Aborigines and left their residue in the Yolngu language.
Not long after European settlement, Darwin became the hub for communications between Australia and the rest of the English-speaking world after the 1870s Overland Telegraph connected it via undersea cable to Java. Messages could reach Europe in days, rather than taking months by sea.
With self-government beginning in 1978, the Territory once again looked north for development. Its first chief minister, Paul Everingham, was "clear that the NT didn't have very much that the south wanted, but that we were sitting below a very large market", according to John Killen, executive director of the Office of Asian Engagement, who has been involved with Indonesia since the 1970s.
According to Shane Stone, the Territory's first minister for Asian relations and trade, beginning in the early 90s, who went on to become chief minister: "The Indonesian government, from the president down, was very conscious of who we were, where we were, and when they thought of Australia they thought of us."
Since Australia imposed its temporary ban on live exports to Indonesia - following revelations about cruelty in its abattoirs shown in footage on ABC television's Four Corners - Indonesia has cut its import quota for Australian cattle by almost two-thirds. It has also activated a range of other rules and restrictions, contributing to a perception Australia is being punished for threatening Indonesia's food security.
"It was making animals more important than people," Mills says, "not understanding what impact the denial or the disruption of food sources has on our neighbour.
"How threatening that is, how arrogant that is, how disrespectful to do that without consultation."
In late November, Indonesia announced it would again cut its import quotas for Australian beef and cattle from the equivalent of 85,000 tonnes of beef last year to 80,000 tonnes this year. This means only 267,000 head of live cattle can be exported. Before Canberra's ban, Australia was exporting 520,000 cattle a year.
Mills, a Bahasa Indonesia speaker who moved to Darwin from Perth in 1989 because of the northern capital's growing Indonesian ties, in December made a point of travelling to Indonesia for his first overseas trip since winning office in August.
He and his Primary Industries Minister Willem Westra van Holthe and Business Minister Peter Chandler met Vice-President Boediono, Foreign Affairs Minister Marty Natalegawa and Agriculture Minister Suswono, among others.
The trip, Mills says, was about "acknowledging the strength of a relationship that existed before, and resetting that".
Indonesia has suggested it can achieve beef self-sufficiency as early as next year. But according to beef industry calculations, if just one extra bakso ball were added to every bowl sold, the beef supply chain would collapse under the weight of additional demand.
"If you can't meet the demand from adding one more bakso ball, how can you meet the aspirations target of 20 kilos per head?" says one importer, angry at government quota restrictions.
Skyrocketing prices have pushed some bakso sellers to substitute beef with cheaper pork, triggering outrage among Indonesia's majority Muslim population.
Nyoman Santiawan, vice-chairman of Rama Hotels and Resorts in Bali, warns the supply of beef is "now quite restricted".
"The price is going up for restaurants and hotels, for the hospitality industry in particular it's getting quite difficult," he says.
Strong Top End-Indonesia ties, built up by Stone and others during the early 90s, began to degrade after the Asian financial crisis hit in 1997. Stone's successor Dennis Burke focused elsewhere, and after the Country Liberals lost power to Labor in 2001, relations were further affected by the 2002 and 2005 Bali bombings.
Successive Labor governments looked increasingly towards Japan and China, including by securing a $34 billion gas development for Darwin spearheaded by Japanese company INPEX.
Mills argues if the Top End ties had been maintained, the live cattle saga would never have plumbed the depths it has. The way back, he thinks, is by engaging Indonesia's eastern provinces.
"If we engage with the eastern provinces, show a soft face to the eastern provinces, then the hard face of Jakarta will soften," he predicts. "The problem (now) is they think we're here to exploit them."
Killen sees opportunities not just in commodities exports but in education and construction services, and services to the oil and gas industry. "If we help them create a need, then we can sell into that market," he says. "The economic development of the Territory is tied to the economic development of the region."
In 2010-11, Indonesia was the Territory's fifth-largest export market - after Japan, China, Oman and the US - with exports totalling $200 million, mostly accounted for by trade in live animals. But exports dropped by more than 40 per cent in 2009-10, largely due to a decline in the live cattle trade.
This was down from a record high of 773,000 the previous year. It also reflects the beginnings of Indonesia's reduced quotas in pursuit of beef self-sufficiency, a goal that predates the ban imposed by Australia in 2011.
Last year's numbers are yet to be officially released, but data provided by the federal Department of Foreign Affairs and Trade shows live animals remained the Territory's third-largest export commodity in 2011-12, behind natural gas and mining products, and the largest component of its trade was with Indonesia.
Despite the renewed focus from Canberra and Darwin, it's clear that in building relations with Australia's nearest neighbour, federal and Territory governments have some way to go. In his Keith Murdoch Oration in November, Keating said policy towards Indonesia had languished, "lacking framework, judgments of magnitude and coherence".
It is a view echoed in Jakarta. Harry Chan Silalahi, a prominent academic and political figure, founder of the Centre for Strategic and International Studies in Jakarta, and the key link between the Indonesian and Australian governments during the East Timor crisis, told Mills at a dinner during his visit in December: "It is only in the last two or three years that Australia started to think that there's a neighbour in the north. Usually, you think that the enemy comes from the north. Usually, Australia's stomach is in Indonesia, but the head is in London, and we have to change that."
While in Indonesia, Mills secured agreement from Natalegawa to establish a new regional forum and extracted a promise from Indonesian airline Garuda to look at resuming air links between Darwin and the eastern provinces; they also invited a delegation from KADIN, the chamber of commerce and industry, to visit the Top End. But beef import restrictions remained unchanged.
The Top End cattle industry welcomes the new Territory government's push to revive Indonesian relations. David Warriner, president of the NT Cattlemen's Association, says it's a good strategy but warns Mills to "do the numbers" to ensure the plan is financially viable.
Observers predict no change to beef import restrictions before Indonesia's next general election in 2014. Even then, change may come slowly, predicts Bruce Warren, head of value-added beef at Santori, part of Indonesia's largest publicly listed agricultural company, Japfa Comfeed. He says the restrictions have in many ways achieved their goal.
"The (Indonesians) are growing soybeans, they are manufacturing many products that before were always imported . . . Beef is so expensive (that) the farmer with a few cows has never seen better," Warren says. "We can sit back and say there's no logic to it, but from a different point of view they've been very successful."
Santori once imported almost a quarter of all Australian cattle sent to Indonesia. But with its cattle yards around Jakarta "basically empty", the company has just struck an agreement to build China's largest feedlot, declaring Indonesian import restrictions unlikely to be lifted anytime soon.
In Jakarta, Buntoro Hasan, president and director of feedlot and beef processing company Tanjung Unggul Mandiri, which supplies wet markets such as those where Karna shops every morning, also faces a bleak outlook in the local market.
"We hope the government will give us more import quota. We are running at about 25 per cent capacity," Buntoro says.
Wandering through bare yards, Buntoro comes upon one pen of prime Australian cattle.
"Look at these, they're beautiful," he says, patting one on the rump, before returning to his car and taking Mills to inspect an empty slaughterhouse.


No comments:

Post a Comment