Indonesia and Freeport-McMoRan Inc have struck an initial agreement for state-owned mining company PT Inalum to take a controlling stake in Freeport’s local unit, government officials said yesterday, although the final price for the deal remains unclear.
The agreement will give Indonesia control of the Grasberg mine, the world’s second-biggest copper mine, and should cap years of wrangling over the mining rights for the site.
The two sides in August last year agreed to let Freeport keep operating the mine while ceding control.
An initial agreement has been reached for Inalum to increase its stake in Freeport’s local unit to 51 percent from 9.36 percent, Indonesian President Joko Widodo said.
“I think this is a leap forward. We have to have a larger amount of income from tax, royalties, dividends ... so, the value of our mining sector can benefit everybody,” Widodo told reporters.
It was not immediately clear whether a resolution had been reached on how the mine will be managed by Freeport with Indonesia as the majority shareholder.
A Jakarta-based spokesman for Freeport declined to comment.
During Freeport’s five decades of operating Grasberg in Papua Province, there has been frequent friction between the government and the company over revenue sharing, and the mine’s social and environmental impact.
Phoenix, Arizona-based Freeport has been in negotiations with Indonesia to secure long-term operating rights at Grasberg after the government introduced new rules aimed at giving Jakarta greater control over its resources.
Efforts to finalize a deal have been complicated by concerns over the environmental impact of the project.
With presidential elections due next year, sealing a deal to get a majority stake for Indonesia in one of the world’s biggest mining operations is a priority for Widodo, who is widely expected to seek a second term in office.
A deal is also critical for Freeport, as it needs long-term certainty to push forward with the massive investment needed to develop an underground mining phase at Grasberg from the current open-pit construction.
As part of the acquisition deal, Inalum was expected to acquire the 40 percent participating interest in Grasberg held by mining giant Rio Tinto Ltd.
Indonesian Minister of State-Owned Enterprises Rini Soemarno last month said that Inalum was negotiating a price for the package of Freeport acquisitions of “between US$3.5 billion and US$4 billion.”
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