JAKARTA – Indonesia has struck an “initial agreement” to take majority ownership of Freeport-McMoRan’s giant Grasberg copper and gold mine, President Joko Widodo told reporters in Jakarta on Thursday.
State-owned PT Indonesia Asahan Aluminium, also known as Inalum, will end up with a 51% stake, increasing the nation’s holding from just over 9%, Widodo said. He didn’t give details or a price for the transaction – which also involves an economic interest in the mine held by Rio Tinto Group – except to say that Ministers would announce the value later. Indonesian officials had said earlier this month that the deal would be worth close to $4-billion.
“This is a done deal,” said Widodo, commenting on its preliminary nature. “It means the deal has been completed. But there are still technical issues left.” Riza Pratama, a spokesman for Freeport’s local unit, declined to comment on the president’s statement. Rio Tinto didn’t immediately respond to an email seeking comment.
Widodo is seeking more control over the nation’s vast mineral resources, and has given foreign mining companies a deadline of next year to comply with divestment obligations. The government has insisted that Phoenix-based Freeport give up majority ownership of Grasberg in exchange for a deal that allows the producer to keep operating in the country until 2041.
For more than a year, Indonesia and Freeport have been discussing the company’s long-term presence in the country, in a process that’s been peppered by reports of progress followed by setbacks. CEO Richard Adkerson has said Freeport must remain in charge of operations regardless of the size of its stake after divestment. Adkerson has also said fiscal and legal stability for Freeport are essential to any deal, as is maintaining the environmental status quo around its treatment of tailings waste.
A signing ceremony will be held in the Indonesian capital at 4 p.m., according to the Finance Ministry’s daily agenda distributed to the media earlier on Thursday.
Rio, the world’s No. 2 mining company, has been a partner in the operation since the 1990s under an agreement that helped Freeport fund an expansion. The London-based producer held rights to a 40% share of output above specific levels, and had expected that to shift to 40 percent of all production from 2023.
Rio was said to be ready to accept $3.5-billion to sell its production stake in Grasberg back in May. Earlier this month, Indonesian officials said a near $4-billion divestment agreement, which would include Rio’s stake as well as Freeport’s, was close to being inked.
Even with ownership of Grasberg dropping below 50%, Freeport can still reap substantial benefits from the mine as an operator. Consolidated sales from mining in Indonesia are expected to total about 1.15-billion pounds of copper and 2.4-million ounces of gold in 2018, up from one-billion pounds and 1.5-million ounces last year, according to company data.
Bloomberg Intelligence estimates that reserves at the world’s biggest gold deposit and second-largest copper mine are worth about $14-billion. Indonesia accounted for 47% of Freeport’s operating income in 2017, according to data compiled by Bloomberg.
While securing control of Grasberg may play well with voters before Widodo stands for re-election as president in 2019, the continuing drive to increase the nation’s grip on natural resources also carries the risk of deterring foreign investors and undermining efforts to generate jobs and growth.
“Whatever happens, national interest must come first,” Widodo told reporters, expressing the hope that securing ownership will yield higher income for Indonesia.
Newmont Mining and BHP Billiton pulled out of Indonesia in 2016, and DP World, the Dubai-owned company that operates ports from China to South America, said last year it won’t renew a concession to jointly operate a terminal in the Southeast Asian nation beyond 2019 as conditions set by the government weren’t favorable.
Rio CEO Jean-Sebastien Jacques in May called out a rising tide of resource nationalism around the world that is causing miners to rethink where they invest.