Freeport Indonesia’s Future is in Underground Mining

31 August 2020

Since its acquisition in 2018 by the Indonesian government through PT Inalum, which increased Indonesian ownership to 51%, PT Freeport Indonesia (PTFI) has undergone transformations to greet the future. PTFI now looks on a new horizon with an ambitious underground mining project that follows on the heels of closure of its Grasberg open pit. The five underground mines PTFI will be working on ahead are no laughing matter.

 One of PTFI’s large underground mines is Grasberg Block Cave (GBC), which holds a deposit located precisely below the Grasberg open pit. Then there is the Deep Mill Level Zone (DMLZ) block which was developed in 2016 and is projected to end production in 2040. Work on still another mine, Kucing Liar is only slated to begin in 2020, with an estimated production span stretching to 2053.

 PTFI President Director Tony Wenas says the belief circulating prior to divestment that Freeport’s mineral deposits have been exhausted is untrue. “We have two giant mines we began developing in 2004, GBC and DMLZ, the world’s two biggest  underground mines, and they will be yielding revenue totaling US$6 billion - US$7 billion per year,” Tony stated during a recent interview in a The Nation Metro TV program. He asserted, following PTFI’s shares divestment there have been no fundamental changes made to how the operation is run. Instead, a mutually beneficial synergy has been generated. Tony elucidated, prior to divestment, 60% of PTFI’s contribution to the state was in taxes, royalty, and dividend.  

Now this figure exceeds 70%. This has brought direct impacts, primarily for the provincial government and the regency governments in Papua where PTFI operates, which are seeing considerably higher revenues, in particular following conversion of the company’s contract of work to an IUPK special mining  operation permit.  

Tony went on to aver PTFI remains deeply committed to developing Papua and its people, so that they can enjoy the fruits of their natural resources. He pointed out, one of the company’s directors and nine of its vice presidents are Papuan natives. Currently 40% of PTFI’s workforce consists of native Papuans. “We intend to demonstrate that we are here as part of Papua. We have been here for more than 53 years as part of Papua, and our commitment to building Papua will continue into the future,”  Tony declared.


Underground mining


On this occasion, Tony divulged PTDI’s future lies in underground mining, which the company is earnestly undertaking. Albeit, undeniably, during the transition production perforce declined. However, the production schedule remains on track.  

Not withstanding the low production rate in 2019 and 2020, he ascertains by 2021 production will begin to rise. This year alone, PTFI will produce around 700 million pounds of copper and approximately 800 thousand ounces of gold. In 2021, PTFI will be able to produce 1.4 billion pounds of copper and 1.4 million ounces of gold, and by 2022 the production rate will be 100% restored to normal, until 2041. “So at full production capacity and assuming current prices, we can yield revenue of US$6 billion-US$7 per year for PTFI, with dividend of around US$ 1 billion per year for Inalum beginning in 2022,” Tony stated.

He said that the future of PTFI will still bright because it still has huge mineral reserves. In fact, according to him, these reserves will not be run out until the PTFI mining permit contract expires in 2041. Like the ‘Kucing Liar’ underground mine which is projected to start in 2024 and will only be completed in 2053, it will not be fully utilize because the mining contract period is limited in 2041.

Unless the government once again gives more permits to mining for more than 2041. In addition to the ‘Kucing Liar’ mine, Tony also said that his party had found new reserves under the GBC and DMLZ mines. He predicts that there are two billion tons of resources, and if further exploration is carried out there is a possibility that at least one billion tons of resource reserves can be mined in the next 15 years. "If we are given permission to continue mining after 2041, of course we will carry out further exploration," he said.


Potential smelters


Currently, apart from working on the construction of an underground mine, PTFI is also continuing the construction of a copper concentrate factory or known as a smelter. Tony believes that when the smelter is completed it will have a positive impact on PTFI. He estimates that with the completion of the smelter facility, PTFI will be able to produce around 600 thousand tons of copper cathodes.

In addition, the smelter will also have processing precious refineries for gold and silver processing. Tony projects that the market for copper and gold will still be bright, despite the current global economic conditions due to the Covid-19 pandemic. He sees that the market demand for copper is still high. One of the reasons is the increasing use of electric cars in the future, which requires a lot of copper as raw material. Likewise, the demand for copper from renewable energies such as wind and solar power generation will require a lot of copper. Same goes with gold products whose prices are getting higher every day, even now it has reached US$ 2 thousand per ounce.

The gold products are seen to be needed in the future, it's just that the price level cannot be predicted. "However, our production plan is likely to be achieved according to the long-term investment plan that we have agreed with Inalum until 2041," Tony concluded.

The future of Papua, the divestment of PTFI ownership shares by the Indonesian government is also a hope for native Papuans to work more at PTFI. Currently, there are more and more native Papuans who are occupying strategic positions in PTFI and the composition of the workers has reached 40% of local people.

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