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Source : https://www.cnbcindonesia.com/news/20190826105158-4-94540/meski-proyek-
rugi-freeport-garap-smelter-gresik-rp-42-t

“Despite Project Loss, Freeport Works on Gresik Smelter Rp 42 Trillion”

Gresik, CNBC Indonesia - In Government Regulation (PP) No.1 of 2017 concerning the
implementation of mineral and coal mining business activities (Minerba), domestic mining
companies can export raw mines within 5 years after PP is issued.

Those who can export these raw mines must first change their status from a Contract of
Work (KK) to a Special Mining Business License (IUPK).

At present the Freeport smelter construction is being carried out, using leased land in the
Java Integrated Industrial Estate (JIIPE), owned by Pelindo III and PT AKR Corporindo Tbk.
Its location is in Manyar, Gresik, East Java.

On an area of 100 hectares, a smelter or mine refining plant is built. The current work is soil
compaction.

During a visit by CNBC Indonesia to the location on Saturday (08/24/2019), a vast expanse
of land was being prepared for a smelter that was planned to have a processing capacity of 2
million tons of concentrate per year.
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"This is the biggest smelter in the world that was built in the last 2 years. This will shake the
world, because later the supply of our concentrate will be supplied to this smelter," said
Freeport Indonesia's President Director, Tony Wenas.

The budget needed to build this smelter is quite large, namely US $ 3 billion or around Rp 42
trillion. Until now, Freeport has already spent about US $ 150 million to prepare for the
construction of this smelter, starting from the design, payment of land rent, to soil compaction.

The land rental fee has also been paid by Freeport to the manager of JIIPE for 5 years.

Project Loss

This smelter is not a profitable project for Freeport. Because the profit margin of the smelter
business is very small. From Freeport's calculations, the smelter investment fund will only be
able to return within 20 years. It's hard ...

So, this smelter will only be operational in 2023, if the capital returns 20 years, then the new
investment funds can be closed in 2043. While the Freeport contract in Papua has run out in
2041. Not yet returned, the contract has expired.
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The weight and thin margin of the copper smelter is evident from the business of PT Smelting,
a smelter in Gresik owned by Freeport and Mitsubishi. This smelter has been operating since
1999 and can have a processing capacity of 1 million tons of concentrate per year, which
currently produces around 300 thousand tons of copper cathode annually.

From the smelter manager's data, in each pound of concentrate, the processing margin
obtained by Smeltar is only 24 cents. PT Smelting must continue to be efficient so that it can
benefit from its copper smelter business.

Meanwhile, from the calculation of Tony Wenas, Freeport's President Director, if Freeport's
new smelter business is to continue, the processing cost must reach 60 cents / pound of
concentrate. While the average processing cost at a smelter is around 20 cents / pound.
Freeport also must provide 'subsidies' to its smelters so that they can run healthily. That's
why the copper smelter business is not profitable, aka the loss business.

Not only that, the copper smelter is currently still widely exported abroad. Because the
absorption of copper cathodes in the country is not optimal, because the electronics industry
is not developing rapidly in the country. If the copper cathode still has to be exported, then
there are more shipping costs to be borne. So the smelter business margins can be thinner.
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According to Tony, the copper concentrate produced by Freeport right now is not raw material.
But the added value is 95%. This concentrate has been exported by Freeport all this time. So
Tony said, copper smelters need not be built in Indonesia. Unlike nickel, which does require a
smelter in the country, because the added value generated by the nickel smelter is greater.

PT Smelting currently exports 60% of the copper cathode produced, and only 40% is absorbed
domestically.

Plus, smelters can be considered as capital-intensive but not labor-intensive projects. For an
investment of US $ 3 billion in hundreds of hectares of land, only about 500 people are needed
to operate it.

Freeport First Debt for Semlter

The construction of the new Freeport smelter in Gresik will cost US $ 3 billion or Rp 42 trillion.
Freeport got this money from borrowing, aka getting credit from 11 banks. Freeport Vice
President Director, Orias Petrus Moedak, said that in September 2019 the signing of the debt
will be carried out, so that the project can continue.

"From 15 banks, now there are 11 banks that are ready to give credit. There are 8 foreign
banks and 3 local banks. This is not a form of project financing, but corporate financing," said
Orias.

Tony Wenas said that Freeport Indonesia has been a company that has no debt, aka zero debt.
"So this is our first debt, for the sake of smelters," Tony said.

According to Freeport data submitted by Tony, with the presence of the Freeport deposit
smelter to the government it will go down.