Freeport still reluctant to build copper smelter

Global miner Freeport McMoRan Copper and Gold said it was more than willing to supply any new copper smelters in Indonesia with raw copper concentrates but remained reluctant to develop a smelting operations itself, Reuters reported.

The Indonesian government is renegotiating royalty contracts with foreign investors including Freeport Indonesia as it tries to push firms to add more value within the country. It is also pushing for higher royalty payments and divestment of controlling shares.

?We have our contract of work and we are abiding by it. If there is any new smelting capacity built in Indonesia, we will make every effort to be able to supply concentrate,? Javier Targhetta, Freeport?s Senior Vice President of Marketing and Sales, said in an interview at the Metal Bulletin Copper Conference in Madrid on Thursday.

?Smelting is a difficult business. You have big capital expenditure and small or no margins at current treatment and refining charges (TC/ RCs) and I don?t see TC/RCs improving in coming years,? he added.

Miners pay TC/RCs to smelters to refine concentrate into metal. The charges typically rise when concentrate supply increases, forcing miners to compete with each other for smelting capacity.

Output at copper mines started to recover late last year from years of underperformance, and as welcome relief to long suffering smelters, benchmark TC/RCs increased 10 percent in January to US$70 a ton and 7 cents an lb.

Targhetta, however, did not see the charges moving to levels that would provide fat smelting margins, even though he expected global concentrate supply to rise further this year and Freeport itself to produce some 20 percent more.

This is thanks to rising ore grades at Grasberg, the world?s second-biggest copper mine, where negotiations with the Indonesian government are holding up Freeport?s decision to invest billions to develop underground mining at the site.

Freeport has so far agreed to divest up to 20 percent of the Indonesian firm but says a long-standing Contract of Work protects it from government rules instituted last year that require foreign miners to divest 51 percent of assets. (*)