Tsingshan comes to Freeport’s rescue
The Indonesian mining community was surprised by an announcement made by Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan on November 25. During the New and Renewable Energy (EBTKE) Conference and Exhibition webinar, Luhut told the audience that Chinese stainless steel giant Tsingshan Holding Group was in talks with gold and copper mining firm PT Freeport Indonesia to build an integrated copper and nickel smelter at Weda Bay in Halmahera, North Maluku.1 The smelting facility would cost Tsingshan US$1.8 billion, but this project would allow Tsingshan to integrate the copper smelter with its planned lithium battery plant, which is expected to be completed by 2023.
It began in May when Freeport spokesperson Jonny Lingga told reporters that the company planned to halt the construction of a $3 billion copper smelter in Gresik, East Java.2 To implement this decision, Freeport needs to obtain approval from the Energy and Mineral Resources Ministry as well as the House of Representatives. In August, Freeport had a meeting with House Commission VII expressing its plan to halt its copper smelter construction until 2024, but lawmakers unanimously rejected Freeport’s plea.3
Facing opposition from House members, Freeport turned to the newly appointed mining director general, Ridwan Djamaluddin.4 Nevertheless, Ridwan rejected Freeport’s demand. On September 30, the Energy and Natural Resources Ministry’s Mining Directorate General sent a warning letter to Freeport, telling the company to complete the construction of its new copper smelter in Gresik with a production capacity of 2 million tons per year.5 Freeport was still unwilling. To appease the Energy and Natural Resources Ministry, Freeport signed a deal with Japanese metal manufacturer Mitsubishi Materials Corporation on November 13 to expand the production capacity of its existing copper smelter in Gresik, East Java, from 1 million to 1.3 million tons per year. Freeport’s existing copper smelter in Gresik is operated by its joint venture with Mitsubishi, PT Smelting Gresik. The extension plan will cost Freeport $250 million.6
In response to Freeport’s extension plan, House Commission VII invited the Processing and Smelting Companies Association (AP3I) and the Indonesian Mining Association (IMA) to discuss Freeport’s plan. During the meeting, IMA executive director Djoko Widajanto told Commission VII members that a copper smelter only adds 5 percent margin to the overall value. Meanwhile, AP3I chairman Prihadi Santoso said the location for Freeport’s new smelter in Gresik was not efficient. To improve the economic feasibility of Freeport’s smelter project, the location should be changed, ideally placing it near the production facility of potential buyers.7
Tsingshan, which plans to build a lithium battery for electric vehicles in Indonesia, sees an opportunity in Freeport’s smelter problem. If Tsingshan establishes a partnership with Freeport, it can secure copper supplies for its lithium battery plant. Unlike conventional cars which use 23 kilograms of copper for manufacturing an internal combustion engine, the lithium battery for electric vehicles consumes as much as 83 kilograms of copper. Tsingshan and Freeport are still negotiating the terms of their possible partnership, and Luhut is confident that a deal will be signed before March next year.8
The Weda Bay project in Halmahera, North Maluku, was originally an investment project done by Japanese trading company Mitsubishi Corporation together with French mining and metal group Eramet SA, as well as state-owned metal miner PT Aneka Tambang (Antam). The project kicked off in 2014 with total investment estimated at $5 billion under the management of the joint venture company PT Weda Bay Nickel. Antam owns a 10 percent stake in Weda Bay Nickel, while Mitsubishi and Eramet own 90 percent of the company through Singapore-based investment vehicle Strand Minerals Pte. Ltd – of which Eramet owns 66.6 percent Strand and Mitsubishi 33.4 percent.9
In 2016, however, Mitsubishi exited the project by agreeing to sell its shares in Strand for 11 billion Yen ($105 million). The decision was made after the world nickel price went down from $19,567.67 per ton on September 1, 2014 to $7,789.47 per ton on February 8, 2016. Mitsubishi spent $145 million on the Weda Bay project.10
After Mitsubishi exited Weda Bay, Eramet looked for a new partner. In 2017, it reached an agreement with Tsingshan to sell its 57 percent stake in Strand.11 After acquiring Weda Bay, Tsingshan built a nickel smelter with production capacity of 30,000 tons per year. The smelter started operations in April.12
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