PT Freeport Indonesia Sets Date for New Copper Smelter Construction

PT Freeport Indonesia is moving forward with its commitments to Indonesia, revealing when it expects to start construction of a new copper smelter in the Southeast Asian country.

As quoted by Reuters, PT Freeport Indonesia’s Tony Wenas said the company expects to start construction of the smelter in August, with site preparations in East Java almost complete.

“Ground preparation will be finished soon, maybe in two to three months, and it will be followed immediately by physical construction,” he said.

The smelter is being constructed as part of PT Freeport Indonesia’s deal with Jakarta. The company is required to invest billions of dollars into resources infrastructure in the country in return for mining rights at the Grasberg mine, located on the island of New Guinea.

The smelter must be operational by the end of 2023.

By building the new smelter, which will produce 500,000 to 600,000 metric tons of copper cathode annually, PT Freeport Indonesia will secure mining rights for the mine until 2041 — 21 years from now.

The Grasberg mine is the second largest copper mine in the world and was until recently jointly controlled by the American Freeport-McMoRan (NYSE:FCX) and the Anglo-Australian Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO). That was until Rio Tinto sold out of the project in 2018, allowing the Indonesian government to claim a larger share of the operations.

Freeport-McMoRan had to cede majority control of the project to Jakarta under new Indonesian regulations, with the company now owning 48.76 percent of Grasberg’s operator, PT Freeport Indonesia.

Over the preceding years, the Indonesian government made a habit of using Grasberg as a bargaining chip, threatening to withhold mining and environmental permits unless it got what it wanted. The country has been tightening its control over resources over the last few years.

Since the government took over majority ownership (but left operations to PT Freeport), the Grasberg mine has seen its production fall as it transitions from an open-pit mine to an underground operation.

Open-pit operations ceased in Q4 2019, with the mine having produced over 27 billion pounds of copper over a 30 year mine life between 1990 and 2019.

Underground operations are ongoing, with ore being extracted from a number of large targets. The Grasberg block cave had reserves of 17.2 billion pounds of copper as of December 31, 2019.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.