More Grasberg uncertainty for Freeport

Freeport-McMoRan (NYSE:FCX) is facing more uncertainty about its operations in Indonesia after reports the Asian country's new resources chief dismissed the idea of an early extension of the copper and gold giant's licence.

Luhut Panjaitan, the newly appointed Maritime Affairs minister and one of president Joko Widodo’s closest aides, is quoted by  Reuters as saying "Freeport shouldn't push us" in reference to negotiations on extending the licence for its giant Grasberg mine beyond 2021.

A decision could only be made in 2019 to extend Freeport's operations inside the country for another 20 years according to local regulations. Australia's Rio Tinto also has an agreement with Freeport for a 40% share of production should the licence be extended to 2041. Freeport has been operating in Indonesia since 1972 and mining Grasberg  for just under 30 years.

Another headache for Freeport is the fact that it has to renegotiate its export permits every six months. Current permits are set to expire next week and Panjaitan said the government would provide an update on an extension following talks with the newly appointed mines minister.

Jakarta said it is willing to pay $630 million for the stake, but Freeport's valuation is at least $1 billion more

Further complicating the issue is an overhaul of Indonesia's mining law of 2009 which is set to be approved by parliament before the end of the year. Panjaitan any agreement with Freeport would have to be appropriate under new laws.

In 2015 Freeport and Denver-based Newmont Mining's exports were halted for more than six months during negotiations over compliance with the new regulations. Newmont sold its Indonesian Batu Hijau mine in June for $1.3 billion to a local consortium.

Freeport said last year it planned to invest $17 billion to build a smelter and expand Grasberg operations underground following laws banning the shipping of concentrates from January next year.

Freeport recently reduced its 2016 copper output forecast from the remote mine in Papua province located more than 4,000m above sea level to 1.3 billion pounds from 1.4 billion and cut gold production guidance 8% from earlier forecasts of 1.8 million ounces of gold.

The extension of the licence is also part of a requirement by Jakarta that Freeport sell additional 10% of its operating unit inside the country to the government of the South East Asian nation, which already owns 9.4%. Jakarta has said it is willing to pay $630 million for the stake, but Freeport's valuation is at least $1 billion more.

Freeport's asset sales this year top $4 billion, including $1 billion for a 13% stake in its giant Morenci operation (at 463,000 tonnes last year the fifth largest copper mine in the world) in the US and the $2.6 billion sale of the high-grade Tenke Fungurume mine in the Democratic Republic of Congo to China Molybdenum.