Miners come to the rescue of Freeport in royalty case

Miners come to the rescue of Freeport in royalty case

JAKARTA (JP): The Indonesian Mining Association (IMA) has
defended PT Freeport Indonesia, a subsidiary of the United States
giant mining company Freeport McMoRan Copper & Gold, which is
facing allegations it underpaid royalties to the government.

Association chairman BN Wahyu said the State Finance
Comptroller (BPKP) was wrong to allege that Freeport was
responsible for losses to the state.

The purported irregularities concern the contracts on copper
concentrate sales by Freeport to smelters in Japan and Spain.

Sulfuric acid -- a by-product of copper smelters -- contains
minerals other than copper, gold and silver.

Freeport has not submitted reports on the sales of iron,
sulfur, and other metal residues in the copper concentrate
processed in both smelters.

"In principle, concentrate producers only receive payments for
the amount of copper, gold and silver, because of the commercial
value of the three elements," Wahyu said.

"Although copper concentrate also contains considerable iron
and sulfur elements, no smelters in the world pay any concentrate
producers including Freeport for the associated minerals."

BPKP, in a recent report to the House of Representatives, said
the copper concentrate sent by Freeport to the smelters in Japan
and Spain, contains associated minerals including iron and
sulfur.

The agency believes Freeport received earnings from sales of
iron and sulfur, however the company did not share the related
profit with the government.

The smelter in Japan is owned by Mitsubishi and Sumitomo while
the Spanish one belongs to Atlantic Copper Inc.

Freeport operates one of the world's largest copper and gold
mines in Grasberg, Irian Jaya.

Wahyu explained that the copper concentrate produced by
Freeport had, in general, similarities in mineral content with
that produced by other mining companies including Escondia and
Chuquictama in Chile, Kennecott and Phelps Dodge in the U.S. and
Highland Valley Copper in Canada.

They sell their copper concentrate to smelters in Japan, the
U.S., Canada, Korea, China, Spain and Indonesia.

Indonesia's smelter, located in Gresik, East Java, is
currently in the commissioning stage. It is owned by Japan's
Mitsubishi's Materials Corporation (60.5 percent), Freeport (25
percent), Japan's Mitsubishi Corporation ((9.5 percent) and
Nippon Mining and Metals Co. Ltd. (5 percent).

According to Wahyu, copper concentrates vary in the amount of
mineral residue.

Freeport's copper concentrates generally contain copper
(between 25 percent and 32 percent), iron (between 25 percent and
32 percent), sulfur (between 25 percent and 30 percent), gold
(between 15 grams and 38 grams per ton) and silver (between 40
gram and 65 grams per ton).

According to Wahyu, during the smelting process, iron in the
copper concentrate is discharged in the form of slag, which has
no commercial value.

However, a smelter can transform the sulfur content into a
commodity called sulfuric acid which can be sold to fertilizer
makers.

Earnings from the sale of sulfuric acid can improve a
smelter's efficiency. In this way, it can offer a reduced
smelting fee to concentrate producers.

Wahyu said, however, that if copper concentrate contains too
high a sulfuric content, smelters were unable to produce the by-
product. The smelter's owner then charges the concentrate
producer with a higher smelting fee.

"In view of the fact that Freeport -- like all copper
concentrate producers in the world -- only receives payments from
smelter owners for copper, gold and silver concentrate, the
royalties it pays to the government pertain to copper, gold and
silver," Wahyu said.

"That's the general rule in the international trade of copper
concentrate," he added.

BPKP, in its report, presupposed that rights over sulfuric
acid are owned by Freeport, not the smelters.

Minister of Mines and Energy Kuntoro Mangkusubroto has
instructed the director general of mining at the ministry, in
cooperation with the School of Mines at Bandung Institute of
Technology, to study the contracts between Freeport and both
smelters. Comparisons will be made with standard contracts in
international mineral trading. (jsk)