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Freeport-McMoRan, the world’s largest publicly traded copper company, has cut its production forecasts following a stand-off with the Indonesian government stop exports from its Grasberg mine banned.
The Arizona-based miner company had previously expected to sell 4.1bn pounds of copper this year, a figure it has now revised to 3.9bn after Jakarta banned shipments from Grasberg, the world’s second biggest copper mine.
The new guidance was revealed in a trading update that saw Freeport report adjusted net income of $220m for the three months to the end of March, against a loss of $196m a year ago when commodity prices were much lower.
Adjusted earnings per share of 15 cents were in line with market expectations. Shares in Freeport rose 6.5 per cent to $13.
“During the first quarter, we continued to strengthen our financial positions despite the production interruptions experienced at our Indonesian operations,” said Freeport chief executive Richard Adkerson.
Freeport and the Indonesian government have been locked in a dispute over the country’s contract to work in the country.
After Freeport refused to switch its current operating contract to a new mining license in January, Jakarta banned exports from Grasberg.
Shipments resumed last week after Indonesia granted Freeport a permit to ship concentrate – a feedstock used by smelters to create molten copper – from Grasberg for six months. This will give the two sides some breathing space to try and reach an agreement over a new license.
At stake are plans to shift production at Grasberg from its main open pit to underground deposits, a multi-billion dollar project that will be paid for by Freeport and its joint venture partner Rio Tinto, the Anglo-Australian mining group.
“Our team is focused on reaching a positive near-term resolution to protect our past investments and support our long-term investment plans in Indonesia,” said Mr Adkerson.
Jakarta wants foreign miners, including Freeport, to switch to new mining licences.
As part of the changes, Freeport would also be required to pay new taxes and royalties, divest 51 per cent of its stake in Grasberg to local interests and build a smelter. Crucially, it would also have to relinquish international arbitration rights.
Freeport won’t make the switch unless it gets the same legal and fiscal assurances as under its existing deal – a contract that has been in place for decades.
Tuesday’s results statement revealed the impact of the export ban. Copper sales from Indonesia fell 30 per cent during the first quarter to 125m lbs from period a year ago. Freeport other main assets are located in the Americas.
Following the export ban Grasberg has been running at about 40 per cent of capacity.