UPDATE 1-Freeport sees Chinese demand boosting copper
http://www.reuters.com/article/2012/05/15/freeport-idUSL1E8GFCER20120515?feedType=RSS&feedName=marketsNews&rpc=43
* Big jump in Chinese copper demand expected
* Freeport confident about talks with Indonesian government
* Stock down 3.3 pct as copper price slides
By Steve James
May 15 (Reuters) - The head of Freeport-McMoRan Copper & Gold said on Tuesday that although copper markets were weaker than last year, an expected jump in Chinese consumption should boost investment to find new reserves.
President and Chief Executive Officer Richard Adkerson also told a metals and mining conference that he was concerned about violence around Freeport's vast Grasberg mine in Indonesia. But he was confident the company could resolve issues with Jakarta over moves to limit foreign miners' operations and profits.
Speaking as the copper price was hovering above a four-month low around $3.50 per pound, he said he saw "positive signs" in the marketplace, even though it was weaker than a year ago, when copper was over $4.
Adkerson cited data from a Brook Hunt report showing annual Chinese copper demand was expected to jump from about 9 million tons this year to 16.4 million tons in 2025. That would see Beijing accounting for 51 percent of global consumption of copper, a key metal in China's infrastructure build-up.
He said that was an indication of why the world will require "significant amounts" of copper. To that end, Freeport is increasing its capital expenditure budget to $4.3 billion in 2012 and $4.2 billion in 2013 from $2.5 billion in 2011.
Adkerson said the world's top 10 copper mines between them produce only about 5 million tons per year, so handling a big increase in demand would require "significant investment" in finding new reserves.
"It will make our reserves more valuable in the future," he told the Bank of America Merrill Lynch conference in Miami.
Discussing Grasberg, which was hit last year by a three-month strike, and moves in Indonesia aimed at restricting foreign miners' operations, Adkerson said: "We are concerned about what is going on in Indonesia.
"Number one is the security element. There have been acts of violence and that is my biggest concern," he said in comments monitored via webcast by Reuters in New York.
"Also, we had a new situation with our workforce last year," he said, referring to the strike that affected Grasberg production, denting 2011 and first-quarter 2012 earnings and prompting the company to declare "force majeure," under which it cannot be held to contractual obligations.
"As companies become more profitable, demands from workers increase," Adkerson said.
During the strike, the mine on Papua island was blockaded, a major pipeline to a port was sabotaged, and violent clashes erupted between police, protesters and militants seeking Papuan independence from Indonesia.
Last week, the Indonesian Trade Ministry announced plans to set a new quota for mineral exports, limiting mining companies to their 2009 or 2010 export volumes. A week earlier, Indonesia said it would impose a 20 percent export duty on all metal ores.
The Jakarta government is also seeking to renegotiate foreign mining contracts, increase royalties, and give local interests a bigger stake in foreign miners' operations.
Adkerson said Freeport, which has operated Grasberg since the 1970s, was confident about its contract. It has the right to work there until 2021, with the option for two 10-year extensions, he said.
Although "voices in Indonesia" are calling for more royalties, taxes and divestiture, among other things, "we are dealing with those issues in discussions with the government," Adkerson said.
"I am confident we can work it out," he said, noting Indonesia benefits by getting about 50 percent of the profits from Grasberg.
He said the Grasberg open pit was nearing the end of its life and would likely be depleted in 2016, but Freeport was replacing it with underground operations.
Although Grasberg operations were returning to normal, he did not say when the company might lift the force majeure. Last month he said it would not be until operations returned to normal, perhaps in the second quarter.
Freeport shares slipped 3.3 percent to $33.16 in afternoon trading on the New York Stock Exchange
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