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Economy

Freeport threatens legal action over Indonesia mine

US miner gives 120-day warning, says local hires set to be laid off

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Freeport-McMoRan CEO Richard Adkerson speaks at a news conference in Jakarta on Feb. 20.   © Reuters

JAKARTA -- U.S. miner Freeport-McMoRan on Monday said it may seek arbitration against the Indonesian government if a dispute over its contract for a giant copper mine in Papua Province is not resolved within 120 days.

The company said Freeport Indonesia, the local subsidiary that operates the Grasberg mine, will start laying off local employees this week.

In a press conference in Jakarta, Richard Adkerson, Freeport's president and CEO, said the company sent a letter to the Energy and Mineral Resources Ministry last Friday notifying it of the 120-day period.

"At the end of the period, if the dispute is not resolved, Freeport reserves the right to commence arbitration," Adkerson said. The move will have "severe consequences for all stakeholders" he added.

Freeport Indonesia has been wrangling with the government over new export regulations that Jakarta issued in January. Under those rules, Freeport Indonesia cannot export copper concentrate unless it acquires a new "IUPK" license, under which it would be subject to new export duties and a requirement to reduce foreign ownership to no more than 49% within 10 years.

Freeport has said that it cannot convert to the new license unless the company receives the same legal and fiscal guarantees as provided under its current contract. Because it is unable to export its products, Freeport has halted operations at the mine for more than a week and declared force majeure to its overseas customers.

"We made our first layoffs" after operations stopped, which applied only to foreign employees, Adkerson said. "This week, as the next step, we will be releasing contract workers," which account for about 20,000 of the mine's 32,000 workers, he added.

"We are not doing this ... to negotiate with the government but to keep the business financially viable," Adkerson said. He said Freeport, which discovered the Grasberg mine in 1988, has invested $12 billion in Indonesia and plans to invest another $15 billion to expand its operations.

In response, Ignasius Jonan, energy and mineral resources minister, said that if the company "does not want to accept IUPK, Freeport cannot export copper concentrate."

In January 2014, the government implemented a law that banned exports of unprocessed minerals, but it granted a three-year extension for certain metals, including copper concentrate. The new rules were issued after the extension expired.

On Saturday, Freeport Indonesia announced the resignation of its president, Chappy Hakim, a former air force chief who had served in the post only from November.

Nikkei staff writer Bobby Nugroho contributed to this story.

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