Freeport-McMoRan Copper & Gold Inc.’s (FCX:US) production at Grasberg in Indonesia, the world’s second-largest copper mine, may be 20 percent below this year’s target after a deadly tunnel accident in May suspended work.
Daily production at Grasberg, which has open-pit and underground facilities, is close to 80 percent to 90 percent of its normal rate, Rozik B. Soetjipto, president director at unit PT Freeport Indonesia, told reporters in Jakarta today. The underground mine may take some time to reach its capacity, he said.
Freeport had targeted output of 1.1 billion pounds of copper and 1.2 million ounces of gold this year, the company said today. The deposit, located in Papua province, normally produces 220,000 tons of ore a day.
Phoenix-based Freeport halted work for more than a month at Grasberg after a tunnel collapse on May 14 killed 28 workers. Shipments from the mine resumed last month after the Indonesian government allowed operations to restart.
The suspension at Grasberg affected production by about 125 million pounds of copper and 125,000 ounces of gold in the second quarter, the company said on July 23.
Indonesia’s government has been pushing metal mining companies in the country, including Freeport and Vale SA, to raise the royalties they pay to 10 percent, as part of negotiations to extend the companies’ mining contracts.
Freeport has agreed to raise royalties for copper to 4 percent from 3.5 percent, for gold to 3.75 percent from 1 percent, and for silver to 3.25 percent from 1 percent, Soetjipto said.
The government is also seeking higher state revenues from the mining industry by increasing domestic metals processing to lift the value of shipments. It plans to ban all mineral-ore exports starting from 2014.
Freeport will still be allowed to export concentrates in 2014 as the company is committed to developing domestic metal processing, Soetjipto said.
“I don’t expect that there will be a drastic decision by the government,” Soetjipto said. “And so far from our understanding, the government agrees to give us hopefully some time for us to still continue exporting our concentrate.”
Freeport exports about 60 percent of its concentrates and the rest of its output is processed at PT Smelting, Indonesia’s only copper smelter, he said.
Freeport will sign concentrate-supply agreements with three companies that plan to build smelters and is conducting a feasibility study to build a processing plant in the country, Soetjipto said. The smelters, which are expected to be completed by 2017, will need supplies of as much as 1.6 million tons of concentrates to produce a total of 500,000 tons of copper cathode, said Rudy Seba, Freeport’s Vice President of Technical Affairs.
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