Grasberg mine dispute off the table in US Indonesia talks
APRIL 20 2017 - 7:16PM
The Vice-President of Indonesia has signalled he prevented his US counterpart from discussing the contract row that has crippled operations at Grasberg – the world's second largest copper mine – by telling him "the affair is finished".
Rio Tinto – which revealed on Thursday its copper production had taken a heavy hit due in part to the dispute at Grasberg – was expected to be closely watching US Vice-President Mike Pence's visit to Indonesia this week.
The company's majority partner in Grasberg, US mining giant Freeport McMoRan, said earlier this month it had lost about $1 billion in revenue after the export of copper concentrate was halted on January 12 under new rules issued by the Indonesian government.
"As a consequence of the export ban Rio Tinto is reporting its metal share for the first quarter as zero," Rio Tinto said in a report released to the exchange on Thursday morning.
"Discussions are continuing between Freeport and the Indonesian government to reach a mutually satisfactory longer-term agreement."
The Freeport saga was expected to be raised during Mr Pence's visit, especially given US President Donald Trump's adviser on regulatory issues, Carl Icahn, is Freeport's third biggest shareholder.
However, asked by reporters if Freeport was discussed during a bilateral meeting, Indonesian Vice-President Jusuf Kalla said: "No. I preceded it by saying the affair is finished so he would not mention it. I said it's finished, it's business to business. It is finished."
Mr Kalla said what was left were improvements to the contract. "He [Mr Pence] did not respond to it. He did not talk about it."
Grasberg, which is located in the restive province of Papua, is the world's largest gold mine and second largest copper mine.
The row is over new rules that require Freeport to convert its contract of work to a special mining licence, build a smelter, pay new taxes and royalties and divest a 51 per cent stake in its operations.
Freeport threatened to take the dispute to arbitration but a compromise was reached earlier this month that allowed Freeport to export its copper concentrate while negotiations continued over the next six months.
Rio Tinto is entitled to a 40 per cent share of output from Grasberg above specific levels until 2021 and 40 per cent of all production after 2021.
However, the company indicated on Thursday it might not take ownership of 40 per cent of copper production from Grasberg after 2021.
"Rio Tinto's participation beyond 2021 is likely to be affected due to the application of force majeure provisions in the joint venture agreement between Rio Tinto and Freeport McMoRan," it said.
Last month Rio Tinto Group chief Jean-Sebastien Jacques said it was considering its stake in the Grasberg mine.
"There is a big difference between a world-class resource and a world-class business and depending on how the situation will evolve, today I can't confirm it's going to be a world-class business for Rio Tinto," he was quoted saying by Bloomberg.
The situation was "very fluid" and "depending on what happens in weeks, months or even years, then we'll have to take a call".
Rio Tinto revealed on Thursday its copper production was down 37 per cent in the first quarter and compared to the same quarter last year due to the Grasberg mine impasse and a 43-day strike at the Escondida mine in Brazil.
Rio Tinto shares were down 0.39 per cent to $58.67 on Thursday.
Mr Pence did not mention Freeport but told the media that the US was seeking trade relations that were both "free and fair" for job creation and growth for both countries.
"American companies have been doing business in Indonesia for years and American products and services have contributed greatly to Indonesian economic development, but we believe we still have room for significant progress," he said.
Jakarta based lawyer and mining expert Bill Sullivan said he was sure Rio Tinto would be watching closely to see if Mr Pence's visit to Indonesia "clarifies the situation with regard to Freeport and results in certainty as to how Freeport can move forward in developing the Grasberg mine on a commercially realistic basis – fiscal certainty is key".
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