Freeport Resource & Reserves – MEGI seminar.

January 4, 2016 Ian Wollff Linked In 0

This talk graphically reminds us of the extreme physical environment, and high risk to develop this deposit with an initial 33 million ton open pit reserves in a “new” country. Present resources & reserves are at around 2.27 billion tons of underground ore containing Cu-Au-Ag in several ore bodies, being open at depth. Indonesian professionals can be proud of Freeport as a world class mine that is committed to continue this investment in Indonesia’s future for the next 30+ years. Freeport is nearing completion of its new $4 billion 240,000 t/day processing plant. All reserves are updated and published in detail within the various stock exchanges annual reports. The high cost and long term (10 years) nature of exploration and underground development before new production can start reflects the need for Freeport to have long term certainty to its operations.

MGEI (Masyarakat Geologi Ekonomi Indonesia – Indonesian society of economic geologists) held a half day seminar in Jakarta on 17 December 2015 to discuss the misunderstandings of the Freeport reserves. The meeting was attended by about 70 people, including many of the leading Indonesian geologists, and some media.

Wahyu Sunyoto (Freeport SVP Geo-Engineering). Excellent presentation with slides & video to outline Freeport’s history of exploration, construction and ongoing development. Outline main ore bodies and total resources & reserves for Cu, Au & Ag. Assumption that Freeport COW will be extended to 2041, with new process plant ($ 4 billion and now nearing completion) for 240,000t/day throughput and ongoing underground development continues. Historic strip ratio around 5:1, and still the cheapest Cu-Au producer in the world. By 2017 the open pit will end and all production from underground.
Anton Perdana (Freeport Geo-Data & Modeling). Data from regional mapping, geochemistry & air geophysics to develop a 1:250,000 regional geological map for the Government. Identified ore bodies / anomalies at Grasberg open pit & underground plus Lembah Tembaga, Wanagon Gold, Kucing Luar, Big Gossan, DOM, DMLZ, GBTA and Eess. Each modeled reserve area approximately 3km by 3 km with individual blocks having 15m sides. Studies indicate ore emplaced over relatively short 150,000 year period. Extensive surface and underground drilling of around 10,000 holes for 2,700,000m drilling. Ongoing exploration budget of about $15 mill/year. Reserves till 2041, and cut off by depth to +2,500m and grade control [$2/lb Cu, $1,000/oz Au, and $15/oz Ag] provides estimated of 2.27 billion ton of ore, with statistics for each ore body presented. An example of part of a Dec 2014 reserve statement is ;
- Grasberg Open Pit 179.2M ton at 0.96%Cu, 1.06g/t Au, 2.41g/t Ag
- DOZ Block cave 145.6M ton at 0.45%Cu, 0.69g/t Au, 2.22g/t Ag
- Big Gossan 54.0Mton at 2.26%Cu, 0.99g/t Au, 13.82g/t Ag
- Grasberg Block Cave at 1,011.6Mton at 1.0%Cu, 0.77g/t Au, 3.49g/t Ag
- Kucing Kiar 406.3Mton at 1.25%Cu, 1.07g/t Au, 6.67g/t Ag
- Deep MLZ Block Cave 471.9Mton at 0.87%Cu, 0.71g/t Au, 4.36g/t Ag.
Ore is sensitive to pyrite content. Resources & Reserves prepared annually in accordance with SEC (US) JORC (Australian), KCMI (Indonesian) and UNFC standards, and reconciliation between methods, along with independent review, and published in accordance with various stock exchange requirements. Technical issues persist with measuring stopped voids and water. Drilling confirms the ore bodies continue below +2,500m elevation, but formulating resources & reserves for these depths is not yet undertaken.
Sumardiman Digdowirogo (Chairman of SUMACorp). Conducted public file research to indicate different Indonesian ministries and various international banks and finance consulting agencies quote different resources & reserves for Freeport. This is mostly due to their misunderstanding the differences between the various ways in expressing the reserves, such as contained metal, recoverable metal etc.
Iwan Munajat (Independent Consultant). Suggested Freeport Company is reliant upon its Indonesian operations, and this could be a bargaining point for the Indonesian government.

Discussions;

Freeport’s continued underground development program requires additional external financing, as the Indonesian government has significantly restricted its concentrate exports. Thus the governments dividends from its Freeport shares (9%) is also likely to be zero in 2015, as Freeport seeks to optimize cash flow for the mine development program.
It takes about 10 years to explore & undertake underground development of a block, before production. Thus it is essential that underground exploration continues.
Freeport is an example of a sustainable mine, with normal cash flow sufficient for ongoing exploration and development. It has been a successful mine since starting in 1972 and may go well beyond the present extension to 2041.
Budi S. provided an amusing but significant comment to remind all that there are 4 classes of people 1) Have power & have knowledge = Government, 2) no power & have knowledge = professionals, 3) have power but no knowledge = politicians, 4) have no power and no knowledge = people/LSM. As a professional group to be reminded that speculation about nationalizing Freeport is futile unless the professionals can influence people with power.
The training and development of manpower at Freeport is a great source of human capital that can go out into other mining fields in Indonesia.
Freeport has complied in relinquishing some of its exploration area, wherein a drilled Cu-Au resource of more than 100 million tons is reported (all data) to the Government. The area has yet to be auctioned under the law4/2009 regulations, note the area is remote.

Freeport is a significant contributor to the Indonesian economy, a world leader in reserves, cost efficient mining & processing along with mining technology, social development and environmental concerns. I apologize for any errors or significant omissions with these notes.