Interview: Fcx Committed To Indonesia Copper Mine-ceo

INTERVIEW: FCX Committed To Indonesia Copper Mine-CEO

by Andrea Hotter / DOW JONES NEWSWIRES

7th April 2006

SANTIAGO (Dow Jones)--The political risk of operating in Indonesia may be higher than in some other copper mining areas of the world but Freeport McMoRan Copper & Gold Inc (FCX) has never considered pulling out of the region, company President and Chief Executive Richard Adkerson told Dow Jones Newswires.

"We constantly monitor the situation for the safety of the people that work there but we have never got anywhere near the possibility of not working there," he said, speaking in an interview on the sidelines of the CRU 5th world copper conference in Santiago Thursday.

"Indonesia is a democracy that is emerging and developing and maintaining civil order is one issue that needs to be addressed. We don't get involved in the politics of the country, that isn't our intent. The government has shown restraint in dealing with any protests that have been seen, and order has been restored following demonstrations without having to forcibly remove protestors," he added.

The recent protests by illegal miners on the road leading to the company's Grasberg copper and gold mine in Papua province attracted "a lot of interest" after several years of relative calm in the region.

But the recent violence at a demonstration in Jayapura, 250 miles from the Grasberg mine, was "the turning point in the Indonesian government's reaction to the situation, and they realized that order needed to be restored," Adkerson said. The protests were lined by some to local elections.

The company has been operating in Indonesia since 1972 and has what amounts to a 50-year contract of work. Grasberg was discovered in 1988 and has since become the world's second largest copper producer and the world's biggest gold mine.

Freeport has an 80% stake in Grasberg with the state owning the remainder. The company is a major contributor to the Indonesian economy, providing $1.2 billion in taxes, royalties, dividends and fees in 2005.

According to Adkerson, Grasberg produces 250,000 tons a day of sustained output although this has increased at times to 280,000 tons a day. Grasberg, which expects to mine 2.2 billion tons of ore, has reserves of 3 billion tons grading an average 1.64% copper.

Grasberg's mine output accounts for about 80% of the mill's throughput, with the remainder produced in the DOZ mine. "DOZ has a design capacity to mine 35,000 tons a day but produces above 40,000 tons daily and is trying to boost this to 50,000 tons a day," Adkerson said. "The existing mill facility is one of the largest in the world, at between 240,000 and 250,000 tons a day," he added.

"The challenge is the mine rate, which we are trying increase significantly," Adkerson said. The Grasberg open pit is currently anticipated to last until 2015, at which point the mine will move to underground, where three times the current reserves are estimated. A series of mines will feed into the mill from this time.

A study in 1996 and 1997 determined the optimum pit shape for when Grasberg moves to underground mining. "To go deeper, you have to go wider," Adkerson said.

Freeport also owns a 25% stake in PT Smelting, which operates the Gresik copper smelter and refinery, also in Indonesia. "Gresik is Indonesia's only smelter. When we signed the contract of work in 1991, we came to an agreement with the government or a smelter to be built," Adkerson said. "The government was keen to secure some downstream copper operations in the country," he added.

The principle owner and operator of Gresik, which produces 275,000 tons a year, is Japan's Mitsubishi. The Gresik refinery recently expended from 250,000 tons a year to produce 270,000 tons last year, and will expand further in the future, Adkerson said.
In Spain, Freeport owns Atlantic Copper, which operates the 290,000 tons a year Huelva smelter and a refinery producing 260,000 tons a year of cathode. "Atlantic Copper is part of Freeport's concentrates marketing function," Adkerson said. The plant was acquired in the 1990s when it became difficult to place concentrates into the market, and uses feed from Grasberg.

"The smelter was owned by the Kuwait Investment Agency, which was struggling at the time, so when the opportunity came to us we acquired the operations and upgraded them," Adkerson added. Production at the smelter is consumed domestically in Spain, as well as in Italy and France.

Looking at the copper mining sector, Adkerson said the clear thing that distinguishes the period of current high prices is the absence of good deposits. "Historically, the mining industry had good deposits to develop. But the quality margins have gone and there are also now constraints on cost, currency factors and political risk - the supply response characterizes this period of time," he told Dow Jones Newswires.

"There is plenty of money available to mining companies and there is certainly the strategic need for producers to find new production, given dwindling reserves and grades at existing mines. But the good deposits are few and far between," he said.

Freeport is based in New Orleans.

By Andrea Hotter; Dow Jones Newswires; +44 207 842 9413; andrea.hotter@dowjones.com