More Grasberg uncertainty for Freeport

Freeport-McMoRan (NYSE:FCX) is facing more uncertainty about its operations in

Indonesia after reports the Asian country's new resources chief dismissed the idea of an
early extension of the copper and gold giant's licence.

Luhut Panjaitan, the newly appointed Maritime Affairs minister and one of president Joko
Widodo’s closest aides, is quoted by  Reuters as saying "Freeport shouldn't push us" in
reference to negotiations on extending the licence for its giant Grasberg mine beyond
2021.

A decision could only be made in 2019 to extend Freeport's operations inside the country
for another 20 years according to local regulations. Australia's Rio Tinto also has an
agreement with Freeport for a 40% share of production should the licence be extended to
2041. Freeport has been operating in Indonesia since 1972 and mining Grasberg  for just
under 30 years.

Another headache for Freeport is the fact that it has to renegotiate its export permits
every six months. Current permits are set to expire next week and Panjaitan said the
government would provide an update on an extension following talks with the newly
appointed mines minister.

Further complicating the issue is an overhaul of Indonesia's mining law of 2009 which is
set to be approved by parliament before the end of the year. Panjaitan any agreement
with Freeport would have to be appropriate under new laws.

In 2015 Freeport and Denver-based Newmont Mining's exports were halted for more than
six months during negotiations over compliance with the new regulations. Newmont sold
its Indonesian Batu Hijau mine in June for $1.3 billion to a local consortium.

Freeport said last year it planned to invest $17 billion to build a smelter and
expand Grasberg operations underground following laws banning the shipping of
concentrates from January next year.

Freeport recently reduced its 2016 copper output forecast from the remote mine in Papua
province located more than 4,000m above sea level to 1.3 billion pounds from 1.4 billion
and cut gold production guidance 8% from earlier forecasts of 1.8 million ounces of gold.

The extension of the licence is also part of a requirement by Jakarta that Freeport sell
additional 10% of its operating unit inside the country to the government of the South
East Asian nation, which already owns 9.4%. Jakarta has said it is willing to pay $630
million for the stake, but Freeport's valuation is at least $1 billion more.

Freeport's asset sales this year top $4 billion, including $1 billion for a 13% stake in its
giant Morenci operation (at 463,000 tonnes last year the fifth largest copper mine in the
world) in the US and the $2.6 billion sale of the high-grade Tenke Fungurume mine in the
Democratic Republic of Congo to China Molybdenum.
 Newmont selling Indonesian unit for $1.3 billion
Newmont Mining (NYSE:NEM) said Thursday is selling its 48.5% stake in PT Newmont Nusa
Tenggara, the operator of its Batu Hijau copper and gold mine in Indonesia, for $1.3 billion
to PT Amman Mineral Internasional.

The amount, said the Denver-based miner, is comprised of cash proceeds of $920 million
expected to be paid at closing and contingent payments of up to $403 million.

Nusa Tenggara Mining Corp., majority owned by Sumitomo Corp., has also agreed to sell
its ownership stake to PT Amman.

Newmont has been seeking to sell its local business after Indonesia banned raw ore
shipments in January 2014 and put a progressive tax on concentrates, a semi-processed
ore that’s shipped to smelters for processing into finished metal.

The move, said authorities, was part of a wider policy to boost revenue by turning
Indonesia into a manufacturer of higher-value products and to encourage construction of
domestic smelters and refineries.

The deal is expected to close in the third quarter pending regulatory approval and other
closing conditions.

The open-pit Batu Hijau mine (meaning “green rock”) was discovered in 1990 in the
southwest region of Sumbawa island. It's Indonesia’s second-biggest copper and gold
operation, after Freeport-McMoRan Inc.’s Grasberg asset, which has the world’s
largest gold reserves.
 Indonesia to ease mineral export ban from 2017
The government of Indonesia will relax next year its ban on partially processed minerals
exports, including copper, nickel, zinc and bauxite ore order to prop up its economy.

According to the country's mining minister Sudirman Said, the review of the metal exports
rule is part of a wider revision of the 2009 mining law that led to the export edicts and other
regulations,Reuters  reports.

Indonesia imposed the polemic ban on metal ore exports in early 2014, in an attempt to
improve returns on resources shipped out of the country by developing smelters that would
add value to resources and create jobs.

But the curbs cost billions of dollars in lost revenue to the nation, which is southeast Asia's
largest economy and — at the time — a top nickel ore exporter and a major supplier of
bauxite.

The ban has also been a bone of contention between the government and companies
operating in the country, which include Phoenix-based Freeport-McMoRan Copper & Gold
(NYSE:FCX) who operates the world’s fourth largest copper mine at Grasberg in the West
Papua province, and Denver's Newmont Mining Corp. (NYSE:NEM). Together the two U.S.
miners account for 97% of Indonesia's copper exports.

The withdrawal of the ban would be a serious setback for these companies, as they were
forced — against their will and existing contracts — to comply with the regulation and to
develop smelting facilities.
 Indonesia could deplete coal reserves by 2033
Indonesia could exhaust its economically retrievable coal reserves by 2033, a study by
PriceWaterhouseCoopers released on Monday showed.

Indonesia is among the world's top exporters of thermal coal, but its output has slipped in
recent years as plummeting prices of the power station fuel have forced miners to cut costs.

The PwC study is based on information from 25 coal mining companies representing around
80 percent of Indonesia's output, and looked into the availability of domestic coal for the 35
gigawatts of power stations Indonesia hopes to build by 2019.

Cost cuts by miners have included reducing exploration and stripping ratios - the amount of
dirt removed to expose mineable coal, PwC Indonesian advisory chief Mirza Diran told
reporters.

"Exploration to find new coal reserves has pretty well stopped," Diran said, adding that
these two factors had reduced the lifespan of the country's coal mines.

Based on government data, Indonesia had around 32.3 billion tonnes of coal reserves in
2014. However, declining stripping ratios and profitability have led to a drop in coal reserves
of 30 to 40 percent, Diran said, noting that the survey found coal reserves of between 7.3
billion and 8.3 billion tonnes.

In these circumstances, Indonesia's coal reserves could be depleted between 2033 and
2036, he said.

"There is a possibility that national coal reserves ... will not be enough to supply 20
gigawatts of power stations for 25-35 years," Diran said, referring to the portion of the 35-
gigawatt programme that is expected to be coal-fueled.

Coal miners' profitability - as reflected in earnings before interest, taxes, depreciation and
amortisation (EBITDA) - declined by 60 percent to $2.5 billion in 2014 from $6.5 billion 2011
among the group of miners studied, Diran said.

As a result, in 2015 the companies' spending had fallen by around 80 percent to $400
million from the $1.9 billion spent in 2012.

"Our survey indicates this decline will continue with a (further) 10 to 20 percent decline in
2016."

Responding to the findings, the Indonesian Coal Mining Association urged the government
to lock in measures to set coal prices based on miners' costs.

Association chairman Pandu Sjahrir said he hoped such a pricing policy would help stimulate
investment in exploration and stabilise the economy, as well as secure coal reserves for the
country's power stations. (Reporting by Agustinus Beo Da Costa; Writing by Fergus Jensen;
Editing by Dale Hudson)