In New York on Thursday copper for delivery in May was trading slightly higher at $2.6375 per pound or $5,817 a tonne with mixed news on disruptions at the world’s biggest mines pulling the metal in different directions. Copper is holding onto modest gains year to date, but is down more than 6.5% since hitting 20-month highs mid-February.
Copper has been buoyed by a strike at BHP Billiton’s Escondida mine in Chile, where after a 43-day stoppage workers decided to return to work on Thursday without signing a new deal.
Top listed copper producer Freeport McMoRan’s giant Grasberg mine in Indonesia also announced this week copper concentrate production will be resumed after a 38-day hiatus following a strike at a domestic refinery in which the US company owns a minority stake.
Grasberg remains under a concentrate export ban as Freeport negotiates a new operating licence and ownership agreements with the Asian nation. Phoenix-Arizona-based Freeport’s has been mining at Grasberg in the remote Papua province since the early 1970s and currently owns just over 90% of the iconic mine.
To complicate matters further Rio Tinto has an option for a 40% stake in the mine that it can exercise in 2023
Bloomberg on Thursday reports the change in ownership may happen more quickly than anticipated with the deputy minister of mining Fajar Harry Sampurno announcing that Freeport could lose control of the iconic mine within two years:
“We’re ready,” Sampurno said at a press conference in Jakarta on Wednesday. A local aluminum producer, PT Indonesia Asahan Aluminium, will be turned into a holding company to purchase the stake, he said. “Once the holding company is formed, they will immediately work on it.”
Freeport has been in negotiations to sell down its stake to below 50% for years, but talks with the government have repeatedly broken down over valuation. Freeport served a notice to Indonesian officials in February that allows it to seek arbitration over the terms of the new operating licence or so-called contract of work which the company says lacks certain legal and investment safeguards.
Freeport is currently operating under a temporary special licence. To complicate matters further Rio Tinto has an option for a 40% stake in the mine that it can exercise in 2023. That deal was singed in 1995, but the Australian giant is now looking at options to exit the agreement.
Freeport Indonesia has suspended capital investments at the remote mine in Papua province and reduced production to roughly 40% of normal levels. In January Freeport said for each month of delay in obtaining approval to export, the Indonesian subsidiary’s share of production is projected to be reduced by approximately 32,000 tonnes of copper and 100,000 ounces of gold.
In Peru, a 1,300-worker strong strike at Freeports’ Cerro Verde mine which recently underwent a massive expansion is set to end on Thursday on government orders, but the union vowed to down tools again on Friday. Workers walked off the job 11 days ago and according to the union production at the mine is running at 50% after Freeport brought contract workers onto the site.
Freeport, which vies with state-owned Chilean giant Codelco as the world’s top producer of the red metal, was trading down slight on the New York Stock Exchange on Thursday affording the company a $18.5 billion market valuation. The stock is up more than 30% over the past year over optimism for the outlook of copper.
Comments
Pat Wood
There has been a lot of misinformation regarding Grasberg in the past couple of days, esp. as copper bears use the confusion on the true state of Grasberg’s operations to sell down copper.
The Gresik smelter was down for maintenance until 3/21, hence the stoppage of any Grasberg production from early Feb, until then.
Now Gresik smelter is running, but the local Indonesian smelter is only capable of processing about 40% of Grasberg output.
Hence the decision by FCX on 2/20 to reduce mine capacity by -60%, once they resumed operations again, as they cannot stockpile concentrate production.
That’s a big reduction.
Frik Els – you’re one of the few whose got the story right.
Kudos.