Freeport-McMoRan’s Indonesian Operations Continue To Be Dogged By Uncertainty

June 9th, 2017 by Trefis Team
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Freeport-McMoRan’s embattled Indonesian mining operations continue to experience strife with the company firing 3,000 striking workers earlier this week, which represents around 10% of the workforce of the Batu Hijau mine. [1] The workers were protesting against layoffs at the mine, which is operating under a temporary permit to export copper concentrate as it negotiates the terms of a long-term agreement with the Indonesian government. The ongoing strike by a section of the workforce negatively impacted mining and milling rates at the Batu Hijau mine, the world’s second largest copper mine. [1] In combination with unfavorable weather conditions impacting copper mines in South America, labor-related operational issues at Freeport’s Indonesian copper mine pushed up copper prices by 2% over the past couple of days.

Copper Prices June 6-8 2017

LME Copper Prices, Source: LME

Freeport was forced to suspend exports of copper concentrate from its Indonesian operations for the best part of the first quarter as a result of regulatory changes impacting the mining industry in Indonesia, which placed restrictions on the export of certain unprocessed minerals including copper concentrates. Though the company resumed exports in April under a temporary permit, it is required to reach a permanent agreement with the Indonesian government by October. [2] The Indonesian government expects Freeport to switch to a shorter term special mining license from its longer term investment agreement and also divest a majority stake in its Indonesian operations to Indonesian nationals. [2] While the company is looking to negotiate a more favorable deal with the government, the latest labor-related issues cast further doubt over the sustainability of production levels at its Indonesian operations. Any further operational disruptions at the world’s second-largest copper mine could push up copper prices. We will be closely monitoring the situation in Indonesia, as the company continues to operate in a business environment fraught with uncertainty.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Freeport-McMoRan

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Notes:

  1. Turmoil at No. 2 Copper Mine Deepens as Freeport Fires Thousands, Bloomberg [↩] [↩]
  2. Indonesia Allows Exports From Freeport Mine in Stop-Gap Deal, Bloomberg [↩] [↩]