Freeport to yield control of giant Grasberg copper mine to Indonesian government

US-based Freeport McMoRan Inc. has agreed to reduce its stake in the Grasberg mine, Indonesia to 49 per cent in exchange for licenses to operate the massive copper and gold pit until 2041. The world’s second largest copper mine announced that it was giving Indonesia a majority stake in its massive Grasberg copper and gold mine.

A press release issued by Freeport said, “FCX (Freeport McMoRan Inc.) will agree to divest its ownership in PT-FI at fair market value so that Indonesia interests own 51 percent of PT-FI’s shares. The timing and process of divestment is being discussed with the Government. The divestment will be structured so that FCX will retain control over operations and governance of PT-FI.”

The deal means Freeport will grant a 51% ownership in the mine to Indonesia and has committed to build smelters in the country. In return, the US miner will be allowed to keep the mine open until 2041.

The tentative agreement is meant to put an end to mounting public rage over foreign ownership of Indonesia’s biggest copper asset. It could also bring closure to years of disagreements between the Phoenix, Arizona-based company and the government of Indonesia, which curbed output at the mine, impacting metals prices worldwide.

The deal is considered a victory for Indonesian President Joko Widodo, who faces re-election in 2019 and who has insisted that mining companies must divest majority stakes in order to continue operating in the country.

“The result of this negotiation is in accordance with the instructions of President Joko Widodo to prioritize the national interest, the interests of the people of Papua, the sovereignty of the state in the management of natural resources, and keep the investment climate remains conducive,” the Ministry of Energy and Mineral Resources said in a statement.

The two parties still have to negotiate the details of the agreement, including what the Indonesian government might have to pay for the stake in Grasberg, responsible for more than a quarter of Freeport’s total output.

Freeport has to sell 40.64 percent of PT-FI to reach the divestment target after earlier selling a 9.36 percent share.

“A state-owned mining holding company involving “several” state companies could take that remaining stake,” said State Owned Enterprise Minister Rini Soemarno. Analysts believe that an independent company might be formed to calculate the divestment valuation.

Under Indonesian law, the central government would have the first claim to the PT-FI stake, followed by the country’s regional governments. State-owned enterprises or regional government enterprises would be next in line followed by private companies or a public offering for the stake.

Last year, Freeport offered a 10.64 percent stake in PT-FI that valued the mine at $16.2 billion while the government counter-offered at $630 million. Freeport believes that any Grasberg valuation should include the mineral resource, while Indonesia maintains that resource is essentially held by the country and not the mine operator.

The iconic Grasberg mine, world’s largest gold mine and second-largest copper operation, generated more than 500,000 tonnes of copper and over 1 million ounces of gold.

Prashant has worked in the publishing industry for 17 years. His keen interest in commodities developed while working for organisations such as like Thomson Reuters, Wolters Kluwer & McGraw-Hill eventually brought him here. In his free time, Prashant consults with businesses in the digital space.

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