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)