Freeport Indonesia

Business Summary

Freeport is planning large capital investments to develop underground mining facilities in the Grasberg mine as open pit resources are reaching depletion. It is estimated that the mine still holds ample reserves; 31 billion pounds of copper and 30.9 million ounces of gold.

Freeport's contract to operate the Grasberg mine will end in 2021. Currently, the company is in talks with the Indonesian government for a 20-year extension to which it is entitled according an agreement made in 1991. The government, however, targets for more revenue from Indonesia's resources and wants Freeport to comply with the new 2009 Mining Law. This law includes limits to concession areas for miners, stipulates an increase in government royalties, and foresees larger domestic ownership through share divestment.

Currently, Freeport McMoRan holds 81.28 percent of Freeport Indonesia's shares directly, and - indirectly - it holds another 9.36 percent through the company PT Indocopper Investama. The remaining 9.36 percent is held by the Indonesian government. It remains unclear if Freeport McMoRan needs to sell part of its stake in the company, and - if yes - whether it will be sold to the central government, regional government or state-owned companies.

The company is the largest tax payer to the Indonesian government.

Violent Incidents

Although mining in Papua is highly lucrative business, Freeport has met profound resistance during its mining activities. The company finds itself in the middle of an armed independence struggle. For decades, the militant Free Papua Movement (OPM) has been fighting for independence from Indonesia. The OPM operates from a base in Puncak Jaya, not far from the Grasberg mine. Moreover, Freeport is hated by many Indonesians as it is regarded to benefit disproportionally from Indonesia's resources and has a negative environmental impact. To make matters more sensitive, Freeport's activities are conducted in one of the poorest regions of Indonesia. For safety reasons, Freeport hires security forces who regularly have to engage in armed battles with unknown gunmen along the roads leading to the mine. On several occasions employees of the company have been killed by these gunmen.