Freeport Insists Govt to Grant Copper

Concentrate Export Permit

PT Freeport Indonesia (PTFI) has filed for an extension of its copper

concentrate export permit until beyond May 2024, in line with the company's
2024 work plan and budget (RKAB) that is still under review by the Energy
and Mineral Resources Ministry. PTFI spokesperson Agung Laksamana
stated that the application for the export relaxation considers the progress of
constructing the smelter in Gresik, East Java.

According to Agung, the smelter is expected to reach its full capacity or ramp
up by December 2024. "Thus, the produced copper concentrate cannot be
immediately absorbed entirely by the new smelter," he told Bloomberg
Technoz on Jan 5. Freeport is still awaiting government approval for the
2024-2026 work plan and budget.

Bambang Suswantono, the Energy and Mineral Resources Ministry's Acting

Director General of Minerals and Coal, said the directorate general is still
evaluating PTFI's 2024-2026 RKAB, which is currently under assessment by
the Directorate of Mineral Business Development. He stated that evaluating
mineral sector RKABs takes relatively longer than coal due to the numerous
business entities involved, requiring extensive crosschecking of their records.
Our View

The evaluation of PTFI's RKAB is facing hurdles after the company

encountered issues when the government raised concerns about the
construction of the smelter in Gresik, which did not align with the initial
plan. The Supreme Audit Agency's (BPK) audit results mentioned that PTFI
should potentially face fines of up to US$501.94 million due to the
discrepancies in the Gresik smelter project. The audit highlighted that PTFI's
progress verification report six months before the smelter plan changes did
not utilize the initial S-curve as the basis for physical progress verification.
Meanwhile, PTFI already received approval for copper concentrate exports
during that period.

PTFI had been constructing a smelter in Manyar, Gresik, as part of its

obligations under Law No. 3/2020 concerning Mineral and Coal Mining,
mandating mining concession holders to process their mining materials
domestically. The audit agency pointed out that PTFI had repeatedly
communicated changes in the smelter construction plan, yet its execution
consistently deviated. From the audit findings, PTFI's smelter progress failed
to meet the minimum threshold of 90 percent, thus qualifying for
administrative fines.

Given these issues, the Indonesian government is now extra cautious in

reviewing PTFI's RKAB. Similar to previous instances, PTFI has requested
an export permit extension for copper concentrate, citing it necessary to
finance the Gresik smelter construction. PTFI also contends that exporting
copper concentrate is essential because the smelter, scheduled to operate in
May 2024, cannot function at full capacity. The full production phase can
only commence in December 2024, meaning the copper concentrate
produced from April to November cannot be fully absorbed by the new
smelter immediately, necessitating exportation to prevent losses.

The approval of PTFI's RKAB and export relaxation now hinges upon the
commitment to complete the Gresik smelter. In several statements, Energy
and Mineral Resources Minister Arifin Tasrif mentioned that the government
remains steadfast in its decision to prohibit PTFI's copper concentrate exports
by May 2024. Arifin added that the Indonesian government is not afraid of
the risk of a potential 50 percent reduction in state revenues from PTFI if the
ban on copper concentrate exports remains in place.
https://dinsights.katadata.co.id/read/2024/01/10/freeport-insists-govt-to-grant-copper-concentrate-
export-permit