In 1936, Dutch geologist Jean Jacques Dozy was a member of an expedition that scaled Mount Carstensz (now called Puncak Jaya), the highest mountain in the Dutch East Indies. While there, he made notes of a peculiar black rock with greenish coloring, and spent several weeks estimating the extent of the gold and copper deposits in the area. In 1939, he filed a report about the Ertsberg (Dutch for "ore mountain"). He was working for Nederlandsche Nieuw Guinea Petroleum Maatschappij (NNGPM), an exploration company formed by Shell in 1935, with 40% Standard Vacuum Oil Company interest and 20% Far Pacific investments (Chevron subsidiary).

Dozy's Ertsberg report came to light again in 1959 when Jan van Gruisen, managing director of the Dutch company Oost Borneo Maatschappij N.V, or East Borneo Company, searched for geological studies on nickel deposits in Western New Guinea. Although the Dozy report did not mention nickel, Van Gruisen applied to the Netherlands government for an exploration concession for an area of 100 square miles (300 km2) surrounding Ertsberg.[1] In March 1959, the New York Times published an article revealing the Dutch were searching for the mountain source of alluvial gold that had been washed into the Arafura Sea.[2] Van Gruisen casually mentioned the Dozy report to Forbes Wilson, geologist and vice president of Freeport Minerals Co.,[3] who immediately recognized the mining potential of Ertsberg. Wilson convinced Freeport to back an expedition to explore the Ertsberg site, and in 1960 led an exploration party on an arduous, 6 week long trek to Ertsberg that confirmed the presence of an immense amount of copper mineralization. The directors of Freeport Sulphur at the time included Godfrey Rockefeller, Texaco chairman Augustus Long, George Mealey, and Robert Lovett.

In 1963 the administration[4] of Dutch New Guinea was transferred[5] to Indonesia, and the mine was the first under the new Suharto administration's 1967 foreign investment laws intended to attract foreign investment to Indonesia's then ruined economy. Built at 4,100 metres (14,000 ft) above sea level in one of Papua's most remote areas, it involved a capital and technology input well beyond Indonesia's resources at the time. Construction cost was $175 million, $55 million above the original budget.[6] A 116 km road and pipeline, port, airstrip, power plant and a new town called Tembagapura (literally: copper town) were built. It officially opened in 1973 (although the first ore shipment was in December 1972), and was expanded by Ertsberg East, which opened in 1981. Steep aerial tramways are used to transport equipment and people. Ore is dropped 600 metres (2,000 ft) from the mine, concentrated and mixed with water to form a 60:40 slurry. The slurry is then pumped through a 166 km pipeline through mountains, jungle and swamp to the port at Amamapare, dried and shipped.

In 1977 the rebel group Free Papua Movement attacked the mine. The group dynamited the main slurry pipe, which caused tens of millions of dollars in damage, and attacked the mine facilities. The Indonesian military reacted harshly, killing at least 800 people.[7]

By the mid-1980s, the original mine had been largely depleted. Freeport explored for other deposits in the area. In 1988, Freeport identified reserves valued at $40 billion at Grasberg (Dutch, "Grass Mountain"), just 3 kilometres (2 miles) from the Ertsberg mine. The construction of the winding road to Grasberg, the H.E.A.T. (Heavy Equipment Access Trail), was estimated to cost $12 million to $15 million to build. An Indonesian road-builder, Ilyas Hamid, who had contributed to the Ertsberg road took a bulldozer and drove it downhill tracing the path. The road cost just $2 million when completed.

The 2003–2006 boom in copper prices increased the profitability of the mine. The extra consumption of copper for Asian electrical infrastructure overwhelmed copper supply and caused prices to increase from around $1500/ton to $8100/ton ($0.70/lb to $4.00/lb).

In 2005, the New York Times reported that between 1998 and 2004 Freeport had given senior military and police officers and military units nearly $20 million.[8]