Freeport-McMoran Reports 4Q, Year-end Results

Freeport-McMoran announced consolidated sales of 1.2 billion pounds (lb) of copper, 405,000 ounces (oz) of gold and 22 million lb of molybdenum for fourth-quarter 2016 and 4.65 billion lb of copper, 1.1 million oz of gold and 74 million lb of molybdenum for 2016. The company expects sales for 2017 to be 4.1 billion lb of copper, 2.2 million oz of gold and 92 million lb of molybdenum. These numbers assume normal operating levels at PT Freeport Indonesia (PT-FI), which is currently dealing with new regulations from the Indonesian government.

Capital expenditures totaled $504 million (including $405 million for mining operations) for fourth-quarter 2016 and $2.8 billion (including $1.6 billion for mining operations) for 2016. Capital expenditures for the year 2017 are expected to approximate $1.8 billion. During the fourth quarter of 2016, FCX completed $5.2 billion in asset sale transactions, including the sale of its interest in TF Holdings Ltd., through which FCX held an interest in the Tenke mine, and the sales of the Deepwater Gulf of Mexico and onshore California oil and gas properties.

PT-FIís assets includes one of the worldís largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. In July 2014, PT-FI and the Indonesian government entered into a Memorandum of Understanding (MOU), in which subject to concluding an agreement to extend PT-FIís operations beyond 2021, PT-FI agreed to construct new smelter capacity in Indonesia and to divest an additional 20.64% interest in PT-FI. PT-FI also agreed to pay higher royalties and to pay export duties until certain smelter development milestones were met. In January 2015, the MOU was extended to July 25, 2015. The increased royalty rates, export duties and smelter assurance bond have remained in effect.

In October 2015, the Indonesian government provided a letter of assurance to PT-FI indicating it would revise regulations allowing it to approve the extension of operations beyond 2021. However, in January 2017, the Indonesian government issued new regulations to address exports of unrefined metals, including copper concentrates and anode slimes, and other matters related to the mining sector. The new regulations permit the continuation of copper concentrate exports for a five-year period through January 2022, subject to various conditions, including conversion from a contract of work to a special operating license, commitment to completion of smelter construction in five years and payment of export duties to be determined by the Ministry of Finance. In addition, the new regulations enable application for an extension of operating rights five years before the expiration of the IUPK and require foreign IUPK holders to divest 51% to Indonesian interests no later than the 10th year of production. Export licenses would be valid for one-year periods, subject to review every six months, depending on smelter construction progress.

The regulations permit the export of anode slimes, which is necessary for PT Smelting (PT-FIís 25% owned copper smelter and refinery located in Gresik, Indonesia) to continue operating. PT Smelting is engaged in discussions with the Indonesian government related to the renewal of its anode slimes export license. Following the issuance of the new regulations and discussions with the government, PT-FI advised the Indonesian government that it would convert its COW to an IUPK, subject to obtaining an investment stability agreement providing the same rights and the same level of legal and fiscal certainty enumerated under its COW. PT-FI also committed to constructing a new smelter during a five-year timeframe after approval of the extension of its operating rights.

PT-FI has requested that concentrate exports be permitted while the new license and stability agreement are negotiated. As of January 25, PT-FI had not obtained approval to export concentrate. If PT-FI is prohibited from exporting copper concentrate it will be require to reduce production, reduce its workforce, significantly reduce costs and suspend future investments on its underground development projects and new smelter, the company said. Under its COW, PT-FI has rights to export copper concentrate without restriction or payment of export duties. If necessary, PT-FI may consider legal action to enforce its contractual rights should it fail to reach a mutually satisfactory agreement with the Indonesian government.

As featured in Womp 2017 Vol 02 -