Deal Would Make Indonesia Majority Owner Of Grasberg Mine
(Kitco News)- Indonesia’s government wouldbecome the majority owner of the giant Grasberg copper and gold mine in thecountry under non-binding agreements reached with mining giantsFreeport-McMoRan Inc. (NYSE: FCX) and Rio Tinto, the companies announcedThursday.
Indonesian state-owned PTIndonesia Asahan Aluminium (Inalum) would pay $3.85 billion under the deal, RioTinto and Freeport said.
Rio Tinto said it would get $3.5billion for its entire interest in Grasberg. Freeport said it would receive$350 million.
The Grasberg mine is currently90.64% owned by Freeport and 9.36% by the government. Rio has been entitled toa joint-venture share of the output under a 1996 agreement.
Inalum will contribute the RioTinto interest to Freeport’s local unit, PT Freeport Indonesia, which willexpand PT-FI’s asset base, Freeport explained. Following completion of thetransaction, Inalum will own 51% of PT-FI (subject to an agreement betweenshareholders to replicate the joint-venture economics), while Freeport will own49%.
With the deal, Freeport said itsshare of future cash flow from the expanded PT-FI asset base, combined withproceeds from the transaction, would be comparable to its existing share offuture cash flow. Freeport will continue to manage the operations of PT-FI.
“This agreement marks asignificant milestone toward establishing a new long-term partnership with theRepublic of Indonesia to provide long-term stability for PT FreeportIndonesia's operations,” said Richard C. Adkerson, vice chairman of theFreeport board, president and chief executive officer.
“Through this transaction, thegovernment will achieve its ownership objectives in a manner that preserves thelong-term value for FCX shareholders and the people of Indonesia through2041....We look forward to a mutually positive and beneficial partnership withInalum that will continue to provide substantial benefits to the people ofPapua; the Republic of Indonesia; and to our local employees, suppliers andcontractors while generating attractive returns for our shareholders.”
Indonesian President Joko Widodocalled the tentative deal “a leap forward,” according to a Reuters report. “Wehave to have a larger amount of income from tax, royalties, dividends...so thevalue of our mining sector can benefit everybody,” Widodo said.
The transaction is expected toclose during the second half of 2018, Freeport said. This will be subject tothe negotiation and documentation of certain agreements, including PT-FI'slong-term mining rights through 2041 in a form acceptable to Freeport.
“Given the terms that remain tobe agreed, there is no certainty that a transaction will be completed,” RioTinto said in its announcement. “Any final agreements will be subject toapproval by the necessary government regulators and authorities.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
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