American mining giant Freeport McMoRan Copper & Gold Inc has shut down production, retrenched 1,400 workers at its high-altitude Grasberg mine and put thousands on furlough as it faces the prospect of an uncertain future in a climatic stand-off with the Indonesian government. The company issued a 120-day ultimatum on February 17, warning it will go to international arbitration over Jakarta’s efforts to force it to convert its Contract of Work (CoW) to a Special Business License (IUPK) four years ahead of its expiry date in 2021.The written notice was delivered five days after Freeport McMoRan’s normally placid chief executive, Richard Adkerson, finally lost patience in what was described as a stormy encounter with Mines and Energy Minister Ignasius Johan after months of fruitless negotiations. At a later meeting with shareholders, he said the regulations were “in effect, an expropriation of assets and we are resisting aggressively,” adding that “the polite approach that we have had in the past, if we go to arbitration, is going to be replaced with tough lawyers.”Leaving no provision for arbitration, the conversion requires Freeport Indonesia to build a US$2.7 billion smelter and divest 51% of its shares within 10 years as the government seeks to bring it into line with the 2009 Mining Law. Freeport began to run down the Grasberg operation after January 10 when the government re-imposed a ban on exports of copper concentrate and other mineral ore until the company and other CoW holders agreed in principle to making the change.In the end, it was forced to stop work completely and take all three of its massive crusher units off-line because of a strike at the Mitsubishi-run Gresik, East Java, smelter – the country’s only copper processing facility – which normally handles 35-40% of Grasberg’s output. The government has moved swiftly to get Parliament and a receptive public on its side, but it is not clear how Freeport’s 32,000-strong work force will react in an often rebellious region that has never had great love for Jakarta. The workers are only part of the problem. Also effected are 10,000 indigenous miners engaged in the US$100 million-a-year business of extracting residual gold from the rock waste that washes down a river to a lowland deposit area.Despite warning Freeport about the consequences if it fails to bend, President Joko Widodo has shown he is still hopeful of a settlement by appointing Jonan and Finance Minister Sri Mulyani Indrawati as the only officials authorized to negotiate with the company.That appears to exclude Maritime Coordinating Minister Luhut Panjaitan, Widodo’s closest political advisor whose portfolio includes natural resources and who has been an ardent critic of Freeport.The government unilaterally granted Freeport a temporary export license and a six-month grace period to convert to an IUPK. But it continues to disregard the sanctity of Freeport’s contract, which it signed with the authoritarian Suharto regime in 1991.Approved by Parliament and containing wording that implies the company is entitled to two 10-year extensions, the contract has the force of Indonesian law and trumps both government and ministerial regulations.Ignoring the huge amount of investment needed to develop a mine 3,500-meters up in Papua’s Central Highlands, most Indonesians believe Freeport has made vast profits at their expense over the past half century and that it is time to take it back.They take seriously an article in their Constitution under which the country’s natural resources belong to the people. Little public thought is given to the fact that harnessing those resources requires capital that the state and private firms don’t have.Freeport and partner Rio Tinto’s US$17.2 billion project to convert Grasberg’s open pit into the world’s biggest underground mine will be in jeopardy if a solution isn’t found to the current impasse – along with US$15 million a day in lost revenues, roughly split between Freeport and the state.Finding another major foreign company to take Freeport’s place would be problematic because it would have to hand over a controlling interest long before it could realistically recover its investment, let alone make a profit.Not all ministers appear to be on board with the government’s confrontational stance. Some are clearly worried about the impact on export earnings and the foreign investment needed to push the economy beyond its current 5% gross domestic product growth rate.But politics has become a big part of the equation, particularly with Widodo seeking a second term in 2019, just two years before Freeport’s contract expires. He would not want to appear to be yielding to a foreign mining company already regarded as Public Enemy No 1.Passed in the middle of a commodity boom, the 2009 Mining Law and subsequent regulations have ushered in a new wave of economic nationalism that has brought exploration to a standstill and has failed to spur a significant surge in mineral processing, which it was designed to do.In a February 8 letter to Widodo, American Indonesian Chamber of Commerce president Wayne Forest called on the government to repeal or amend the controversial mining law – or otherwise do something to exempt Freeport from its provisions. Some officials have suggested making a direct approach to billionaire investor Carl Icahn, Freeport’s biggest single shareholder, to find a way out of the impasse. But as President Donald Trump’s advisor on regulatory issues he is unlikely to lend a sympathetic ear.Indeed, Adkerson is known to have the full support of Icahn and the rest of the shareholders. It is also understood that Freeport’s predicament has come to the attention of senior officials in the new Trump administration.Tempers were already fraying before Adkerson flew in from the firm’s Phoenix headquarters, with newly appointed Freeport Indonesia chief executive Chappy Hakim resigning after poking an angry finger at a legislator during a parliamentary hearing.Insiders say the retired air force chief’s decision to step down was prompted more by him not wishing to be on the opposite side of the nationalist lobby, which suggests finding an Indonesian replacement might be difficult.With the government now holding 9.4% of Freeport Indonesia’s shares, divestment means first offering the remaining 42.6% to cash-strapped regional governments and then to Indonesia’s state and private enterprises.