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Economy

Head of Freeport's Indonesian unit resigns

Copper miner in deadlock with government over export ban

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Policemen stand guard as workers of PT Freeport Indonesia protest in Mimika, Papua Province, Indonesia, on Feb. 17. (Courtesy Antara Foto)   © Reuters

JAKARTA -- U.S. miner Freeport-McMoran's Indonesian subsidiary announced the resignation of its President on Saturday, adding fresh uncertainty to its negotiations with the government over a ban on exports from its giant copper mine in Papua Province.

Concerns over reduced supply in the global market have already lifted the benchmark price of copper, the metal used in everything from electrical wires to motors, to its highest level in 20 months.

In a press release, Freeport Indonesia said Chappy Hakim, a former chief of Indonesia's air force who had only been appointed president in November, will resign from the position and return to his previous role as an adviser to the company.

"Serving as President Director of PT Freeport Indonesia requires extraordinary time commitment," Hakim said in the release. "I have decided that for the best interests of [Freeport Indonesia] and my family, I am resigning from my duties as President."

The resignation comes more than a month after Indonesia announced new export regulations for mining companies, including Freeport, which operates Grasberg, one of the world's largest copper mines.

With the ban in place, Freeport stopped exporting copper concentrate while trying to negotiate a deal with the government to ensure "legal and fiscal stability."

Meanwhile, domestic demand is too small to substitute for exports, so operations at Grasberg recently came to a halt, according to local media reports.

Under the ban, Freeport Indonesia cannot export copper concentrate unless it acquires a new "IUPK" license. These licenses come with provisos. One requires a holder to reduce foreign ownership to no more than 49% within 10 years. Another makes the holder subject to new export duties.

Freeport would also have to build a copper smelter within five years.

The government is apparently using the regulations to try to generate more revenue from the country's natural resources and develop a domestic processing industry.

It's a gamble. Concerns over the economic consequences of a prolonged shutdown at Grasberg, which has more than 30,000 workers, have grown the past few days. On Friday, the Energy and Mineral Resources Ministry said it will grant Freeport Indonesia a one-year export permit.

But a Freeport Indonesia spokesman told the Nikkei Asian Review that the permit would come with the condition that Freeport Indonesia converts to an IUPK. The spokesman said the company will only agree to this if it gets "an investment stability agreement with the same level of fiscal and legal certainty enumerated" in the miner's current contract.

The spokesman went on that Freeport Indonesia "will continue to protect its rights under the [current contract] while working with the government on a mutually satisfactory replacement."

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