Freeport Cancels Collaborating with Chinese Company to Build Smelter
Freeport McMorran through PT Freeport Indonesia has canceled collaborating with a Chinese company to build a new mineral processing and refining plant (smelter). PT Freeport Indonesia decided to continue the construction of a new smelter in Gresik, East Java with an operation target of 2024.
"After considering various alternatives to balance our commitments, we decided that the best option for the long term was to continue with our plan to build a new smelter in East Java, adjacent to the existing PT Smelting facility," said Freeport McMoran Executive Vice President & Chief Financial Officer Kathleen Quirk. in a conference call for the Performance of Quarter II-2021, Thursday (22/7) local time.
By the Special Mining Business Permit (IUPK) signed in 2018, Freeport Indonesia has a commitment to build a copper smelter with a capacity of 2 million tons by December 2023. Construction of this smelter has been delayed due to the Covid-19 pandemic. Previously, to fulfill this commitment, Freeport had an alternative to build its own smelter or cooperate with a Chinese company, Tsingshan Steel.
Tsingshan's offer has been rolling since last year. The proposal was submitted when the construction of the Freeport smelter at JIIPE was affected by the Covid-19 pandemic. At that time, Tsingshan was said to be planning to build a smelter in Halmahera, North Maluku.
The total investment reached US$ 2.5 billion for a smelter with a capacity of 2.4 million tons of concentrate. The location of the smelter is different from the project currently being worked on by Freeport in the Java Integrated Industrial and Port Estate (JIIPE) Gresik industrial area, East Java. Freeport has decided to continue the smelter project at JIIPE with a capacity of 1.7 million tons of copper concentrate.
In parallel, Freeport is also working on the expansion of the existing smelter managed by PT Smelting. The capacity of this facility will be increased by 30% from the initial 1 million tons of copper concentrate to 1.3 million tons of copper concentrate. According to Kathleen, discussions regarding the smelter expansion with Japanese partners are ongoing. The new smelter project at JIIPE is also ongoing.
"We have just signed an EPC (engineering, procurement, and construction/engineering, procurement, and construction) contract with Chiyoda for the construction of a 1.7 million tonne facility. Now we are focused on completing this project as efficiently and on time as possible, "She explained.
To fund the smelter project, Freeport Indonesia obtained bank funding of US$ 1 billion for five years and will seek additional funding. Freeport Indonesia will bear the costs of PT Smelting's smelter expansion of US$ 250 million. Meanwhile, the value of the new smelter EPC contract at JIIPE is estimated at around US$ 2.8 billion.
Completed 2024
Freeport McMorran's official statement stated that the existing smelter expansion project is targeted for completion by the end of 2023. Meanwhile, the new smelter project at JIIPE is targeted for completion in 2024 assuming there are no construction disruptions due to the Covid-19 pandemic.
Whereas according to the IUPK, the smelter project with a total capacity of 2 million tons of concentrate is due to be completed in 2023. On the other hand, the Mineral and Coal Law mandates that exports are only allowed for mineral refining products starting in June 2023.
This means that the smelter must be completed on time so that mining activities will not experience problems in 2023. Kathleen acknowledged that the smelter project had been delayed by 12-15 months due to the Covid-19 pandemic. His party will continue to monitor this condition closely and continue to report its progress regularly to the Government of Indonesia.
"And our commitment is, with Chiyoda, to resolve this as soon as possible, but they [the Indonesian government] admit there are certain things beyond our control, such as the current Covid-19 situation," he explained.
Last year, Freeport Indonesia reported to the Indonesian government that there was a delay in the construction of the smelter due to the Covid-19 pandemic. However, the government, through the Ministry of Energy and Mineral Resources (ESDM), has not yet approved the shift in the deadline for smelter completion to 2024. According to Kathleen, the construction of this smelter will also provide benefits for Freeport.
"There are several financial and operational benefits with the addition of the capacity of this facility [smelter]," he said.
In Freeport McMorran's official statement, it was stated that the construction of the smelter would eliminate the export tax burden so that it could offset the cost of building the smelter.
Investor Daily, Page-9, Saturday, July 24, 2021
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