Making Sense of Indonesia’s Backflips Over Its Mining Rules

Making Sense of Indonesia’s Backflips Over Its Mining Rules
A Papuan protester with a poster of a map of Papua province during a demonstration outside the office of Freeport-McMoRan's Indonesian subsidiary, Jakarta, March 1, 2006 (AP photo by Dita Alangkara).

Indonesia has one of the world’s greatest stores of natural resources, but it can sometimes be tricky getting them out of the ground. Over 20 percent of the world’s tin comes from this archipelagic nation. In West Papua province, the Grasberg mine contains the world’s largest store of gold and the world’s third-largest store of copper. Majority-owned and operated by American mining giant Freeport-McMoRan, the mine is home to an estimated $100 billion in reserves. But at the moment, Freeport is exporting very little ore and has begun laying off its workforce at the mine amid a standoff with the Indonesian government over export rules.

On Feb. 20, Freeport announced that negotiations with the Indonesian government had broken down and it would shortly reduce mining operations at Grasberg by as much as 60 percent. It was also considering suing the Indonesian government for violating its contract of work. This is the latest in a decades-long drama between Indonesia and the mostly foreign companies it puts in charge of extracting and exporting its natural resources.

The past few weeks have deeply rattled copper and nickel prices, which dropped in January on the news that the Indonesian government was easing a ban in place on exporting unrefined ore. Prices shot back up on Feb. 20, when Freeport said it would consider entering arbitration with the Indonesian government if the disagreement wasn’t resolved over the next four months, implying that very little of Freeport’s copper will hit the market over the near term.

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