Futures & Commodities

Freeport Indonesia CEO resigns after force majeure on copper exports

A worker stands in front of a ball mill at Freeport McMoRan Inc.'s Grasberg copper and gold mining complex in Papua province, Indonesia, on Wednesday, April 22, 2015.
Dadang Tri | Bloomberg | Getty Images

Chappy Hakim, chief executive of miner Freeport-McMoran's Indonesian unit, has resigned, the company said on Saturday, after the parent firm declared force majeure on copper concentrate shipments from its Grasberg mine in Papua.

Freeport, which has been negotiating with the Indonesian government after halting exports due to new mining rules, said on Friday it could not meet contractual obligations for copper concentrate shipments from the giant mine following a five-week export stoppage.

All work has stopped at the mine, the world's second largest for copper, a union leader said.

Hakim, a former air force chief, had only been in the job for a few months. Freeport Indonesia hoped he would be able to use his political connections to help the firm navigate its way through a period of regulatory uncertainty.

"I have decided it is in the best interests of PTFI (Freeport Indonesia) and my family to step down from my duties as president director while continuing to support the company in an advisory role," Hakim said in a company statement.

A Freeport Indonesia spokesman said he could not confirm who Hakim's successor would be.

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Freeport was the second big copper producer in a week to declare force majeure, after BHP Billiton did so on Feb. 10 for Escondida in Chile, where a strike had grounded the world's largest mine.

Grasberg was expected to produce 800,000 tonnes of copper in 2017, about 3.5 percent of global supply, said Jefferies analyst Chris LaFemina. Coupled with Escondida, the mines represent some 10 percent of global supply, he said.

Under new mining rules that Indonesia introduced in January, Freeport had to switch from the contract of work it had operated under since 1967 to a special mining permit before applying for export permits.

The new permit requires Freeport to pay taxes and royalties it was previously exempt from and divest up to 51 percent of its Indonesian unit, an increase from a previously set 30 percent.

To date, it has divested 9.36 percent.

Indonesia's Mining Minister Ignasius Jonan on Saturday said Freeport had refused the government's offer of a six-month transition period in which the company can negotiate terms for its new mining permit.

Freeport could begin exporting again if it agreed to the transition period, Jonan said.

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His ministry on Friday recommended that Freeport be allowed to export 1.1 million tonnes of copper concentrates until Feb. 16, 2018.

The recommendation was conditional on Freeport accepting the special permit, said the parent company's spokesman Eric Kinneberg, repeating that the Phoenix, Arizona-based miner would only agree to a permit that provided the same fiscal and legal protection as currently.

Jonan said that bringing the dispute to an arbitrator could hurt the relationship between the company and the government.

"But it would be a much better step rather than always using the issue of firing workers as a tool to pressure the government," Jonan said.

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