Why Freeport Continues to Mine the Grasberg Mine in Indonesia Despite Controversy

The Grasberg mine, located in Indonesia, is owned by Freeport McMoRan and is one of the world's largest gold mines. However, the relationship between Freeport and the Indonesian government is tumultuous, with recent challenges and controversies. This article explores the reasons behind Freeport's ongoing mining operations in Grasberg and the obstacles they face.

The Complex Legal and Political Landscape

Freeport's continued mining operations in Grasberg are tied to the expiration of their contract in 2021, and their plans to operate beyond this date. The most productive way to extract metals from the mine is through underground mining, which has been a central strategy for Freeport since the early 2000s.

However, the path to continued operations has not been smooth. The SBY (Susilo Bambang Yudhoyono) government introduced a law prohibiting the sale of raw materials, which caused significant disruptions in the mining industry. Mining companies, including Freeport, were forced to build their own smelters and supply the necessary infrastructure, a costly and time-consuming process.

This law effectively ended the "kontrak karya," a simple multi-year contract previously used by mining companies. Freeport tried to circumvent this law by leveraging political influence, which initially proved successful. However, the pressure from the DPR (the Indonesian parliament) demanded that Freeport cease operations. To address this, Jokowi's government issued special extensions allowing Freeport to continue exporting raw materials while negotiating the acquisition of at least 51% of Freeport Indonesia's shares.

The Financial and Political Implications

The negotiations surrounding the acquisition of Freeport Indonesia's shares hinge on significant financial stakes. Ownership of 51% of Freeport's stocks is valued at approximately 7.6 billion dollars, a sum that no state-owned mining company could afford even when combined. The financial implications of this transaction are immense and have implications for both Freeport and the Indonesian government.

For Jokowi's administration, the issue is complex and politically charged. The problem has become a hot topic leading up to election year, making it challenging to find a solution. Investors of Freeport have added pressure, further complicating the business case for the government.

Freeport’s Focus on Copper

While Freeport principally mines for gold, it primarily focuses on extracting copper, which accounts for a significant portion of the mine's revenue. The Indonesian government continues to benefit financially from these operations, making it difficult to expel Freeport from the country.

The situation for Jokowi's administration is further complicated by the fact that the issue directly affects the capital, making it a politically sensitive matter. Balancing investor interests and domestic political pressure is a delicate task.

In conclusion, the ongoing mining operations of Freeport in Grasberg, despite significant controversies, are driven by a combination of financial incentives, contract expiration, and political maneuvering. The future of these operations remains uncertain, posing challenges for both Freeport and the Indonesian government.