Chapter I

Introduction

1.1. Company Profile

PT Freeport Indonesia (PTFI) is a contractor of the Government of Indonesia (GOI) and a

Freeport-McMoran Copper & Gold Inc. (FCX) subsidiary which is operating in Papua, the
most eastern province in Indonesia. PTFI’s operations involving mineral exploration and
development, and the mining and milling of ore containing copper, gold, and silver. PTFI
market its concentrate containing those metals worldwide. PTFI also owned 25% share of PT
Smelting Gresik which is operating a copper smelter and refinery in Indonesia.

The PTFI business objective are:

1. To explore, mine, process, and market copper concentrate and its associated products from
the PTFI Contract of Work area in Papua.
2. To develop and conduct business profitability, creating benefits that earn sufficient returns
for stakeholders, employees, and the Republic of Indonesia, thus attracting to more
investment in PTFI.
3. To foster a challenging work environment staffed by motivated, competent, responsible
and committed employee who meet organizational objectives.

Through its subsidiary, PT Freeport Indonesia (PT-FI), FCX mines one of the world’s largest
copper and gold deposits in the Grasberg minerals district in Papua, Indonesia. In addition to
copper and gold, PTFI produces silver. The Grasberg minerals district has three operating
mines: the Grasberg open pit, the Deep Ore Zone underground mine and the Deep Mill Level
Zone underground mine. The Grasberg minerals district also includes the developed Big
Gossan underground mine, where operations are currently suspended. PTFI also has several
projects in progress in the Grasberg minerals district related to the development of large-scale,
long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are
expected to produce large-scale quantities of copper and gold following the transition from the
Grasberg open pit. Consolidated sales from Indonesia mining of 744 million pounds of copper
(average realized price of $2.33 per pound) and 1.2 million ounces of gold (average realized
price of $1,129 per ounce) in 2015 were higher than sales of 664 million pounds of copper
(average realized price of $3.01 per pound) and 1.17 million ounces of gold (average realized
price of $1,229 per ounce) in 2014, primarily reflecting higher mill rates, partly offset by lower

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ore grades. FCX expects sales from Indonesia mining to increase to 1.5 billion pounds of
copper and 1.8 million ounces of gold in 2016 as a result of higher ore grades in the second
half of the year1.

1.2. PTFI’s Vision and Mission

Vision

To be a world-class mining company that creates excellent values and is a source of pride for
all stakeholders including employees, society and the nation.

Mission

Committed to creatively transform natural resources into prosperity and sustainable growth
through best practices while prioritizing the welfare and security of our employees and
community, human resources development, social and environmental responsibilities, as well
as industrial safety and health.

1.3. PTFI’ Business Process

Currently PTFI apply two mining techniques, namely open-pit or open-pit mining using huge
trucks and shovels in Grasberg mine area as well as the block-caving techniques in
underground mines Deep Ore Zone (DOZ), Deep Mill Level Zone (DMLZ) and Grasberg
Block Caving (GBC – currently under development). Ore delivered from the mine is processed
through the plant. The ore needs special treatment route to enable the become precious metal
to be recovered. The treatment process involves many steps as follows: Ore that has been
crushed transported to the processing plant through series of conveyor belts and "ore pass".
Joint destruction techniques are used, including the use of the machine Semi Autogenous
Grinding (SAG) and the Ball Mill to crush the ore into very fine sand. Followed by the flotation
process using a reagent, alcohol-based materials and lime, to separate mineral concentrates
containing copper, gold and silver, which concentrates these minerals floated to the surface and
snatched the surface (skimmed-off) as a final product. The rest of the sand that has no economic
value settles at the base of the tailings, and released through the river flows into the deposition
area in the lowlands. Concentrates in the form of slurry supplied from the mill to the plant in
the port Amamapare draining through the pipe along the 110 km. The dried concentrates stored

1
FCX Annual Report 2015

2
at the port Amamapare before being sold and shipped to smelting factories worldwide. The
illustration of PTFI business process is shown in figure-1 below.

Figure-1.1: PTFI Business Process

(Source: PTFI Internal)

1.4. PTFI Concentrating Division

Concentrating Division is an operational Division within PTFI that in charge of processing ore
material into valuable mineral concentrates through process which have been described in point
1.3 above. The Division also responsible to maintain production facility including oreflow
system and concentrator plant.

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 President
Director

EVP Human EVP Director – EVP

EVP Information & EVP Chief EVP Public
Legal & Public
Resources Operation Business Services
Affairs Financial Affairs

VP Strategic
VP Manpower VP Legal & VP Security Risk
VP Surface Mine Business Services VP Controller
Management & Transportation Compliance Management

VP Food Services
VP Industrial SVP Mine VP Government VP Supply Chain VP Community
& HL/LL Facility
Relation Underground Management Relations Management Relations

VP
VP Training & EVP Technical VP Corporate VP Community
Compensation &
Development Services Communications Development
Benefit

VP Papuan VP
VP Tax
Affairs Concentrating

VP Occupational
Health & Safety

VP Mine
Maintenance

SVP Geo
Services

VP Central
Services

Figure 1.2: PTFI Organization Chart, Concentrating as one of Operational Division at PTFI

(Source: PTFI Internal)

1.4.1. Concentrating Division Vision & Mission Statement

Vision

PTFI Concentrating Division will lead the industry in the safe, environmentally responsible,
people oriented, and cost-efficient production of copper-gold concentrate to maximize
company value and profitability for our stakeholders.

Mission

The Concentrating division will focus on the following 5 pillars of action to ensure that its
Vision is met:

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Safety: Drive accidents towards zero by building upon current safety systems, emphasizing
risk assessment, to set the environment that promotes a safety first culture and safety as a value.

People: We will continuously develop employee competency, leadership, personal ownership,

and cross discipline problem solving skills, to achieve a higher level of team performance.

Environment: We will ensure that environmental considerations are an integral part of all
planning, engineering, and operations. In addition, we will conduct all activities to ensure that
environment regulations are met leading to zero reportable spills, while facilitating and
encouraging reduction, reuse, recycling and responsible disposal of products used in the
operations.

Production: Maximize metal produced from ore delivered to meet or exceed production
targets through peak equipment performance, productivity, and efficiency.

Cost: Minimize unit costs at or below budgetary levels by optimizing resources and finding
new opportunities through six sigma and continuous improvement.

1.4.2. Concentrating Division Business Process

The ore which is delivered from the mine are processed at the concentrator plant. In order to
process the ore into valuable concentrate, PTFI involves many steps as follows:

1. Crushing and Screening

2. Grinding
3. Froth flotation and gravity concentrator
4. Concentrating and pumping
5. Filtering, drying and shipping

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 Figure 1.3: PTFI Mineral Processing Overview

(Source: PTFI Internal)

Crushing involves tipping ore from the mine into a large crushing machine. This machine is
just a large chamber that contains a swinging weight. Usually large dump trucks tip the ore
directly into the chamber. The swinging weight compress and fractures any large or small rocks
into smaller dimension. The small rocks are dropped onto a large traveling rubber belt called
conveyor. The delivered ore is dumped into two big stockpile which are Amole Stockpile (1.5
million Tons ore capacity) and MLA Stockpile (750,000 tons ore capacity). Ore then delivered
into the Concentrators. As general, Amole Stockpile feed to concentrator No.3 and No.4, while
MLA feed to Concentrator No.1 and No.2.

Grinding is the process that breaks fist size rocks to very fine particle sizes. This is done in
large rotating mills that look like a huge steel drum. These mills contain various amounts of
small and large steel balls which are rotated in order to collide with the rock feed to the Mills.
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Steel balls break the rock fragments into extremely fine rock particles. Water is added to this
process to ensure that all the fine particles are flushed from the mill to the next process. The
size of rock particles after milling is less than 1/10 of one millimeter. To break rock to this very
fine size involves using a lot of electrical power.

The flotation process uses chemicals to collect valuable metal into a concentrated form. Special
chemicals are added to the slurry from grinding. These attach themselves to certain minerals in
the slurry. The chemicals added earlier are hydrophobic (water fearing) so they attach
themselves to the passing air bubbles and float to the top of the cell. When the air bubbles reach
the top of the cell they formed froth. This froth contains nearly all valuable metals, collected
and called concentrates. All the material that did not float is called tailings. Tailing is the word
used to describe slurry with low metal content. The flotation tailings are passed through the
thickener for dewatering before being sent to a river. Some of free gold and slime gold that are
not floated are captured by gravity concentrator. All gravity concentrate is blended to the
concentrate product and the tailing is recycled in grinding circuit.

The concentrates and tailings are eventually passed over to a thickener and the water is removed
for reuse in the process. The concentrates then pumped to the filtering and drying plant at
Portsite through four pipelines. The filtered and dried concentrates transferred to a barn then
loaded into ship and sent to the smelters around the world2.

1.5. Concentrating Engineering and Special Project

Concentrating Engineering and Special Project department was developed in order to support
the operation and maintenance team in term of plant optimization. The Department is divided
into 2 section: Concentrating Engineering and Concentrating Special Project & Corrosion
Control. Each section are divided into sub section with certain function as follows:

1. Concentrating Engineering, the main function of concentrating engineering is

supporting operation and maintenance team in term of plant optimization to operate
safely and properly. The project budget which can be executed by Concentrating
Engineering team is smaller than US $ 10,000. The business process of Concentrating
Engineering is shown in figure 1.5.
2. Concentrating Capital Project, basically the main function concentrating capital project
is similar with concentrating engineering team, however the project which can be

2
PTFI Concentrating Division

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 executed by concentrating capital project is more than US $ 10,000. The business
process of Concentrating Capital Project is shown in figure 1.6.
3. Project Control, the main function of project control is managing each project in order
to ensure the project executed timely and costly manner.
4. Document Control & QA/QC, the main function of this section is ensuring the project
which are executed are based on specification and documented the field change during
the execution of the project if any.
5. Concentrating Special Project, the main function of concentrating special project is an
executor/site construction of each project within concentrating division.
6. Concentrating Corrosion Control, the main function of corrosion control is to identify
the corrosion severity of production facility within concentrating division and
rehabilitate the structural condition in order to prevent the catastrophic failure within
concentrating division due to corrosion.

The organization structure of Concentrating Division is shown in figure 1.4 below. The
Concentrating Engineering & Corrosion Control Department organization chart is marked with
the dash line.

Concentrating Division

Concentrating Concentrating Concentrating Resources

Operation maintenance Technical Support Management

Engineering and Concentrating

Metallurgy Quality Control
Corrosion Control Expansion

Concentrating
Concentrating
Special Project &
Engineering
Corrosion Control

Concentrating Concentrating Document Control Concentrating Concentrating

Project Control
Engineering Capital Project & QA/QC Special Project Corrosion Control

Figure 1.4: Concentrating Engineering and Corrosion Control Organization Chart

(Source: PTFI Internal)

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 Project Initiation
Submit an ESR From consist of:
· Problem identification
· Defined scope of work
· Job# or work order#
· Project classification
· Benefit of project
· Signature of superior

AREA MANAGER
Review/Approval

Concentrating Engineering
· Document Control (give project number, filing and numbering)
· Assign project engineer Cost > $ 10,000 AFE Preparation
· Preliminary design
· Cost Estimate

Cost < $ 10,000 See Capital

Management
Flowchart
DETERMINE ESR PRIORITY
Monthly meeting with Project
Owner

DETAILED ENGINEERING DRAWINGS

Isometric/fabrication/revision drawings

No CHECK & APPROVED DRAWING

· Concentrating Engineering
· Project Owner

PROCUREMENT
· Material Preparation
· Fabrication Preparation
· Bidding (when necessary)
· Create PR for approval by Area Owner/Manager/VP

IFC
Installation by:

CONCENTRATING
THIRD PARTY MAINTENANCE CENTRAL SERVICE
SPECIAL PROJEC

STARTUP &
COMMISIONING

PUNCH LIST & HANDOVER PACKAGE (if required)

· PE Complete punch list
· Client sign handover letter

PROJECT
COMPLETE

Figure 1.5: Operating Project Flow Chart Rev.5 (Jan 31, 2009)

(Source: PTFI Internal)

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 AFE Approved

Assign Project Engineer

Coordinator

Is this for purchase mobile or fixed NO

equipment only
(Not construction type project)

YES

Who will perform detailed

engineering
(Decided by Conc. Eng. & Conc. Div.
Owner)

68 Engineering : NOLA/3rd Party : Conc. Engineering : Concentrating Engineering

- Detailed Engineering - Detailed Engineering - Detailed Engineering Project Engineer Coordinator

Project Engineer Coordinator Equipment Specification

ENGINEERING

NO NO
Detailed engineering approval Detailed specification approval
Conc. Eng. & Conc. Div. Owner Conc. Eng. & Conc. Div. Owner

Doc. Control YES Doc. Control YES

- Filling drawings - Filling specification

YES
Is this stock W/H material ? Who will perform installation
& construction Bidding

NO

Bidding
PTFI Construction Conc. Division 3rd Party
Generate Purchase
Requisition (PR)

Generate Purchase Requisition (PR) by

assigned detailed engineering

PR approval NO
Signed of by Conc. Eng./Conc. Div.
Owner/ Manager/VP
PR approval
Signed off by Conc. Eng./Conc. Div.
Owner/ Manager/VP YES

YES Material Management

Group
Material Management Material Management
Group Group

Purchase Order (PO)

MATERIAL & PROCUREMENT
issued

Purchase Order (PO)

W/H Requisition
issued

Material Delivery

Material Delivery

Hand over package

Quality Control Installation, Construction &

Organized by Conc. Eng. QC Commissioning
PROJECT COMPLETED

YES
Is any punch list ?

NO

Hand Over Package

INSTALLATION & CONSTRUCTION

PROJECT COMPLETED

Figure 1.6: Capital Project Management Chart Rev.3 (May 23, 2006)

(Source: PTFI Internal)

1.6. PTFI Future Challenge

PTFI concentrator plant which have been operated since 1973 can be categorized as an old
plant. As an old plant, PTFI concentrator plant required a lot of brownfield project due to
following issues: a lot of production equipment require to be replaced due to their parts no
longer supplied by the manufacturer, corrosion severity which are caused by interaction
between steel and copper concentrate, and unpredictable ore hardness level. Therefore, a lot
of re-engineered and brownfield project required in order to keep the plant operated as the
design capacity. Increasing of maintenance cost due to old plant and decreasing of ore

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processed in Mill resulted in increasing of ore per ton direct cost of mill throughput. Detail per
tonne direct cost of mill throughput is shown in figure 1.7 below.

The other challenge faced by PTFI are the change of regulation published by Government of
Indonesia on January 12, 2017 (PP No. 1 tahun 2017). The implementation of new regulation
forced PTFI to change the Contract of Work (CoW) to Special Operating License (IUPK). Due
to the dispute among the Government of Indonesia and PTFI, as of January 25, 2017 export
permit have not been approved and PTFI has to limit its production capacity to 40% in order
to suit with Gresik Smelter capacity.

Considering this problem, PTFI require to increase its effectiveness to maintain its operations,
costs and future investment. During this condition, the number of brownfield project are
increasing due to most of the concentrator plant are in maintenance mode.

As part of efficiency and maintain benefit for all stakeholders, PTFI maximizing in-house
resources in order to perform the brownfield projects within Concentrating Division
specifically Engineering and Special Project Department. However, since the number of
brownfield are increasing combined with limited manpower resources resulted in frequently a
lot of brownfield project are executed by operation and maintenance department which don’t
have capability to perform the project properly, which resulting lack of quality since they are
not perform based on proper engineering standard and lack of proper project documentation.

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Figure 1.7: PTFI Concentrating Division per Tonne Direct Cost – Budget and Actual

(Source: PTFI Internal)

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