Mining giants losing their grip on International market as local governments push back

Outnumbered and outflanked, Freeport-McMoRan Inc. chief executive officer Richard Adkerson made an about-face.

Only months earlier, Mr. Adkerson had dismissed the concept of selling a majority stake in the Phoenix-based firm’s flagship Indonesian copper-and-gold mine to local investors. However, seated beside government officials in Jakarta last week, the veteran executive told reporters that he intended to do precisely that.

“Freeport caves to govt needs” headlined The Jakarta Post while the Indonesian Energy and Mineral Resources Ministry tweeted its glee: “Freeport obedient, Indonesia is autonomous” and posted images of Mr. Adkerson, conspicuous in gold-and-black batik alongside successful regional officials.

That picture — a red-faced American CEO in a tropical shirt back peddling — may come to haunt not only Mr. Adkerson but his cohort of multinational CEOs. Freeport’s loosening grip on its Indonesian crown jewel illustrates a bigger challenge facing the international mining sector: In a surge of economic nationalism, local authorities and unions are pushing back against Western dominance of the planet’s natural resources.

“We are seeing the growth of nationalistic governments everywhere,” said Paul Mitchell, a partner at Ernst amp; Young’s mining and metals clinic. “That desire to maintain the resources of a country and work on them {}, I believe, is only likely to grow as we realize they are getting infrequent, and are only likely to become more infrequent.”

In the last year, a merger between Harmony Gold Mining Co. and AngloGold Ashanti Ltd. stalled in South Africa due to regulations intended to boost black ownership of natural resources.

In Mongolia, calls for increased control of these precious commodities have dominated the federal election, while an effort to induce foreign miners to channel sales revenue through local banks endangered Rio Tinto Group’s operations and nearly derailed an IMF bailout.

This past year, Freeport’s efforts to market its share of a copper-and-cobalt mine in the Democratic Republic of Congo were stalled for eight months, finishing only when the company made a $33-million (U.S.) exit payment to the authorities, a third of a settlement between several companies.

In Zambia, Glencore PLC, a Switzerland-based miner and commodities dealer, threatened to fire 4,700 employees after the government increased power prices — and then turned off the change — before agreeing to cover, the president’s office said. First Quantum Minerals Ltd. had previously consented to higher tariffs, according to the government.

In Tanzania, gold miner Acacia Mining PLC, majority owned by the world’s biggest gold producer, Canada’s Barrick Gold Corp., is facing a tax bill on its gold mines equal to four times the nation’s GDP and a demand from the President that it “seek forgiveness in front of God and the angels.”

“Governments begin seeing businesses making more money and, around the world, start seeing different methods of getting more from it,” Mr. Adkerson told analysts during Freeport’s second-quarter earnings call in July. Those government disputes, in addition to more strikes and aging mining gear, will interrupt metal supplies and “super charge” prices, he said.

To be certain, some developing countries are becoming more welcoming of international mining companies. In Latin America, for instance, Argentina and Ecuador have embraced more investor-friendly rules in an effort to exploit their enormous mineral potential.

Nevertheless, a decade-long boom in gas prices, which peaked in 2011, has made many authorities increasingly eager to get a bit of the mining actions. Prices retreated, reaching their low in early 2016 and have since partially rebounded.

“People perceived firms to be making quite large windfall profits, notwithstanding the fact that lots of companies’ prices also increased amid higher commodity costs,” said Gus MacFarlane, vice-president of mining and metals in Verisk Maplecroft, a research company that concentrates on reducing corporate risk.

Freeport’s Indonesian operations have always been rewarding and tough to control. Rain forests surround its flagship property in Papua, the biggest and most remote province in Indonesia.

Viewed from above, Grasberg’s gaping maw dwarfs nearby Puncak Jaya, the highest mountain in Indonesia. Freeport’s biggest mine, it represented about a fifth of the corporation’s $14.8-billion revenue this past year and produced more than a billion pounds of copper and a million oz of gold.

Since its early dealings with Indonesian president Suharto, the business has become the target of local separatist and indigenous groups, in addition to global environmental and human-rights organizations. Freeport has relied upon the army to protect operations from riots and violent protests. In 2011, the authorities fired on striking workers, killing you.

Today, employees at Grasberg are entering Month 5 of what they believe a strike. Freeport explains it differently, stating that 4,000 employees have “voluntarily resigned” after being asked to refrain from high rates of “absenteeism.”

Given this environment, Fraser Institute, a Canadian think tank, rated Indonesia 99th from 104 mining jurisdictions concerning investor understanding of the favourability of government policies.

Mr. Adkerson, who is 70 and has worked for the business’s various incarnations for at least two decades, must now negotiate the conditions of Grasberg’s divestment with the Indonesian government. The two sides still have to agree to the price that local investors will cover Freeport to reduce its stake from 81 per cent to 49 percent.

For now {}, Freeport plans to keep operating the mine. But someday, enhanced technology may let federal governments run mines basically independently, cutting the Freeports of the world almost entirely, based on Ernst amp; Young’s Mr. Mitchell.

“I wonder if what we are beginning to see is authorities realizing that, and beginning to agitate in preparation,” he said. “Is the growth in nationalism only nationalism or is it authorities thinking: we do not actually want the mining companies {}?”

Courtesy: The Globe And Mail

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