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A halt in production at the giant Grasberg copper mine in Indonesia looks set to strain the fractious relationship between miner Freeport-McMoran Inc. and its host nation, at a time when the Jakarta government was already looking to take greater control.Freeport declared force majeure on contracted supplies on Wednesday, two weeks after about 800,000 tons of mud flooded underground tunnels. Two workers were killed, while five more remain missing. The US-listed company slashed its production guidance, dragging its shares down 17% and pushing copper futures to the highest level in more than a year.

Grasberg has long been a flash-point as Jakarta tries to gain a greater say over its resources. The state controls 51% of the local entity — after a lengthy battle over ownership — but officials have sporadically continued to demand an increased share. That clamor may now intensify.The accident also comes at a challenging time for President Prabowo Subianto, who took office last year and has faced violent street protests, as well as a struggle to fund his costly plans for Southeast Asia’s largest economy. With copper and gold near record highs, Grasberg is a critical source of revenue for the authorities — last year, Freeport’s local unit paid out $462 million to the government and region.

Prabowo’s government has vowed to curb excesses in the mining sector, and both foreign and local operators have had to contend with higher royalty payments and crackdowns on permit infractions. A forestry task force earlier this month seized a small part of the country’s largest nickel mine, owned by Tsingshan Holding Group Co. and France’s Eramet SA.Sitting more than 4,000 meters above sea level in the mountains of Central Papua, Grasberg contains the one of the world’s largest deposits of copper and gold. Despite the remote location, the high purity of its ore makes it an alluring and profitable asset.

Those riches, at a time when copper has only become more scarce, account for the US miner’s efforts to maintain its stake, despite government interference and investor pressure over its environmental impact and safety record. Dozens of workers have died at the site this century alone, most notably in 2013, when a tunnel collapse killed 28, drawing reprimands from local politicians and unions.Grasberg has also been a lightning rod for a separatist sentiment in Papua, due to low perceived return of profits to the region, as well as its environmental damage. Indonesian security forces and rebels have sporadically clashed near the mine, resulting in many deaths.

PT Freeport Indonesia, the miner’s local unit, and Indonesia’s Ministry of Energy and Mineral Resources did not respond to requests for comment. State-owned mining company MIND ID, which holds the majority stake in Freeport Indonesia, also did not immediately respond to text messaged queries. Sovereign wealth fund Danantara declined to comment.It’s with the central government in Jakarta that Freeport has faced its greatest troubles. Under former President Joko Widodo, Indonesia began to prioritize retaining a greater share of its natural resources by forcing overseas miners to invest in value-added processing, and by taking greater control of key assets. Among the targets was Grasberg.

Executives and officials clashed for years over everything from tax rates to the way Freeport disposed of tailings, or waste from the mine. Production was halted for weeks in 2017 after the government banned concentrate exports, while the US miner threatened to take Indonesia to arbitration over new mining laws it said had violated its contract.Eventually in 2018, following high-stakes negotiations, a deal was reached under which the government would take majority ownership of the mine, while Freeport’s partner in Grasberg, Rio Tinto Plc, would exit. Freeport also agreed to build a copper smelter in Indonesia, which became emblematic of Jokowi’s initiative to push into mineral processing.

Still, the project faced long delays to its completion, drawing pressure from the government and leading to repeated negotiations over pauses to a final ban on concentrate exports. Even after being finished last year, the facility now looks like a white elephant amid a vast expansion of capacity globally that’s destroyed margins in smelting.A fire at the site last year further delayed its long awaited ramp-up, forcing the company back into talks over the export ban. After months of delays, Indonesia in March granted a further six-month reprieve that expired last week.

Freeport’s current contract to operate the mine lasts until 2041, but after the latest accident officials have made clear they want a greater stake in return for a 20-year extension. Last week, Rosan Roeslani, chief executive officer of Danantara, said Indonesia now expects more than the initially touted 10% additional holding that would be transfered to the country “free of charge.”Any further deal may also be complicated both by the accident and by US President Donald Trump’s increasingly defensive attitude toward American companies abroad. Trump has been willing to invoke tariffs to counter taxes that he says unfairly target American firms, and highlighted access to Indonesian copper as a key factor in recent trade negotiations.

Source: Bloomberg Europe

The UK’s gilt market jitters are starting to impact demand at government auctions as fiscal concerns grow ahead of the budget in November.

Sales of five and 30-year bonds this week both saw measures of demand hit the lowest in at least two years, and a fresh test will come Thursday when the Debt Management Office offers a combined £2 billion ($2.7 billion) of nine- and 13-year debt via its tender program.

The DMO has already skewed sales away from longer tenors to reflect waning demand from steadier buyers such as pension funds, so signs of weakness in shorter-term debt is particularly worrisome.

Bond buyers have doubts over Chancellor of the Exchequer Rachel Reeves’ fiscal plans, helping lift 30-year yields to the highest since 1998 earlier this month.

A series of policy U-turns, higher yields, and an expected productivity downgrade by the Office for Budget Responsibility have left Reeves with a black hole in the public finances. If she is to stick to her fiscal plans, painful tax rises will be necessary in the budget.

Reeves will have another chance to address investors next week, when she speaks at the governing Labour Party’s annual conference.

“The Chancellor of the Exchequer has given the market 12 weeks of speculation before we see the numbers and possible budget hole numbers seem to be rising,”said Hank Calenti, senior fixed income strategist at SMBC Nikko Capital Markets. “It’s hard to issue in that environment.”

But while volatility in yields has become more commonplace in the UK, the lack of demand at auctions is a newer area of concern. Only a few weeks ago, the UK saw near record demand for a sale of notes maturing in 2035 this month — the so-called sweet spot — although those notes were sold via syndication at a hefty discount.

But this week was a different story. On Wednesday, investors bid for 2.8 times the £4.75 billion of five-year gilts on offer, the lowest since 2023. The smaller order book follows a weak sale on Tuesday of 30-year debt, which received the fewest total orders since 2022.

The budget is already playing on investors’ minds and feeding through to this week’s bond auctions, according to James Athey, a portfolio manager at Marlborough Investment Management Ltd.

“There have been several items of late such as the OBR productivity assumption/forecast pointing to the potential for a much bigger hole in the budget,” he said.

The five-year sale fared better in another measure of demand. The difference between the weighted average accepted price and the lowest accepted price, known as the tail, came in at a healthy 0.4 basis points, versus 1.4 basis point for the 30-year debt.

The sales Thursday are tenders for securities that are not part of the UK main sales program, designed to meet market demand. The DMO has stepped up the sales of such bonds as part of its plan to ease dislocations in the market.

Source: Bloomberg

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US President Donald Trump is scheduled to meet Pakistan’s Prime Minister Shehbaz Sharif at the White House, the latest sign of improving ties between the two nations.

The two leaders are meeting on Thursday, according to Trump’s official schedule from the White House. Sharif is already in the US to attend the United Nations General Assembly session.

The meeting is the first time Trump has hosted Sharif at the White House since the Pakistani leader took his country’s top office last year. It comes as relations between the US and Pakistan have been easing in recent months following years of tensions.

The US halted military aid to Pakistan in 2018 following its exit from Afghanistan, and relations further sank over Washington’s drone strike program and its closer ties with arch-rival India.

But the two nations have grown closer during Trump’s second term. Pakistan army chief Asim Munir, widely seen as the nation’s most powerful leader, has visited the US twice since June, including for a private lunch at the White House hosted by Trump. Pakistan’s army wields the final word on critical matters from foreign policy to internal politics and the economy.

Pakistan’s leaders have repeatedly praised Trump for his actions during its conflict with India in May, crediting Trump with brokering a ceasefire. Indian officials have rejected that Trump’s mediation ended the clash. Islamabad later announced its decision to nominate Trump for a Nobel Peace Prize.

The two countries have also been in talks to finalize details of a trade deal that will include investment commitments by Washington. Islamabad has already secured a tariff rate of 19% on its US exports, a significantly lower rate than other nations in South Asia, and well below India’s 50% levy.

In announcing the trade deal in July, Trump said the US will work with Pakistan on developing “their massive oil reserves,” adding that the US was in the process of choosing an oil company to lead the partnership.

Trump and Sharif met briefly on Tuesday when the US President and Emir of Qatar hosted a meeting of Arab Islamic Leaders on the sidelines of the 80th UN General Assembly Session in New York. Sharif met former President Joe Biden at the UN’s annual summit in 2022.

Source: Bloomberg