Freeport Woes Prompt Explosives Maker to Seek New Clients
Francezka Nangoy | December 12, 2011
"We've learned this year that we cannot rely on one client only," Ancora's president director Dharma Djojonegoro said on Monday.
Freeport's workforce has been on strike for three months, which he said has resulted in a 50 percent cutback in the volume of explosives consumption, Ancora's main product.
Dharma said the company is currently courting three or four big miners in Indonesia hoping to secure $50 million to $100 million worth of contracts.
Recently, he said, the company, through is subsidiary Multi Nitrotama Kimia, had secured $75 million from coal miner Adaro Energy to supply the explosive ammonium nitrate and mining services for the next three years. It also won another three-year contract worth $25 million from Asmin Koalindo Tuhup, a subsidiary of coking coal miner Borneo Lumbung Energy & Metal.
He said these two new contracts will patch up some of the losses caused by its main client, which Dharma confirmed as gold and copper miner Freeport Indonesia. According to its financial report posted on the Indonesia Stock Exchange, in the first nine months of this year the company recorded a net loss of Rp 5.97 billion ($663,000), compared to a Rp 13.21 billion net profit in the same period last year.
"I have to admit, this is not a good year," Dharma said. Besides, the force majeure from Freeport, the company has had to deal with the increasing price of ammonia, which accounted for up to 70 percent of the company's total production costs. He said the price of ammonia had increased by $150 per ton this year.
"We usually pass on the increasing costs to our customer, but the price increase is just too significant and of course there is a time gap for that," Dharma said.
Rolaw Samosir, finance director at Multi Nitrotama Kimia, said that Ancora estimates that its ammonium nitrate sales will reach 170,000 tons this year, lower than the 177,000 tons in sales last year.
However, the company is optimistic about next year's performance, expecting 20 percent growth in sales in 2012, above the estimated 10 percent growth across the industry, Rolaw said.
The income will be helped by the completion of its second ammonium nitrate plant, which will increase its production to 150,000 tons from 37,000 tons last year. "This way, we can reduce costs from the imported products," Rolaw said.
The company has set aside Rp 100 billion for capital expenditure next year, including about $5 million to construct a detonator assembly factory in East Kalimantan.
Freeport Strikers Accused of Turning Off Investors
Ririn Radiawati Kusuma | December 12, 2011
Striking workers seen here using pipes to block a road leading to Freeport-McMoRan's gold and copper mine in Timika, Papua, last month. The union has said it would extend the strike a fourth month. (AFP Photo/Tjahjo Eranius)
ony Wenas, the vice chairman of the Indonesian Mining Association, said on Sunday that he was worried a union decision to extend its three-month strike at the Freeport mine in Papua would hurt the country's investment climate.
Juli Parorrongan, a union spokesman, was on Saturday quoted by Bloomberg as saying that the workers would continue their strike until at least Jan. 15. He said they had informed the manpower authority in Papua of the decision on Dec. 5.
About 8,000 of the 12,000 workers at the Grasberg mine, one of the largest copper and gold mines in the world, have been on strike since Sept. 15 seeking higher wages. The mine is owned by Freeport Indonesia, a subsidiary of US miner Freeport-McMoRan.
Tony, who until recently was president director of International Nickel Indonesia, a nickel mining company, said he was worried the strike could "spread to other mining companies."
The worst outcome, he said, would be if workers at manufacturing companies also started following suit.
He said that apart from regulatory uncertainty, labor issues were key factors for investors in deciding whether to bring their money to Indonesia.
Juli was quoted as saying that workers "want to encourage further discussion aimed at settling the problem as soon as possible." He added that an agreement would immediately end the strike.
The Grasberg workers originally demanded a pay increase to $30 to $200 an hour, from $1.50 to $3 an hour. Their demand has since fallen to $7.50 an hour. The company has so far only been willing to raise salaries by 35 percent over two years.
Freeport Indonesia spokesman Ramdani Sirait told the Jakarta Globe in a text message on Sunday that a 20-kilometer concentrate pipeline from mining sites to the port had been damaged during the strike, causing Freeport to be unable to deliver concentrate to a firm that processes it in Gresik, East Java.
"We still can't deliver the material to the port," he said.
The strike caused Freeport to declare force majeure at the end of October on concentrate shipments from Grasberg because it couldn't fulfill certain contractual obligations. Grasberg is currently operating at about 5 percent of its daily 230,000 metric ton capacity because of the work stoppage, a mining official has said.
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