JAKARTA, July 13 (JDN.id) – Indonesia has struck an initial deal worth $3.85 billion to take majority ownership in the world’s second-biggest copper mine Grasberg, despite leaving the U.S. mining giant Freeport McMoran Inc to retain operatorship at the mine.
Jakarta, under the President Joko Widodo administration, has sought to gain greater control over its natural resources wealth, including the copper and gold rich mine.
Speaking to reporters on Friday on the sideline of the 71st commemoration of the National Cooperative Day on the Indonesia Convention Exhibition, Widodo highlighted that the US mining giant through its local subsidiary has been controlling the Grasberg mine in Papua for nearly 50 years.
He said his administration has made a strong effort to gain a greater control over the mine through state owned miner Inalum. Today’s announcement is to celebrate Thursday’s signing ceremony over the heads of agreement between Inalum and Freeport McMoran.
The deal will pave the way for the state miner to increase its control over Grasberg mine to 51 percent from 9.36 percent.
This is made possible as the U.S. mining giant and Australian partner Rio Tinto have agreed on a structure and pricing for a series of transactions to let go majority ownership of the Grasberg mine to Indonesian state-owned miner PT Inalum.
Under the deal, Inalum will pay $3.5 billion for Rio Tinto’s 40 percent holding in the mine, which Freeport will convert into an equity holding in Grasberg’s concession owner PT Freeport Indonesia. Inalum will also pay $350 million for the share of the mine controlled by PT Indocopper Investama.
Widodo said today’s announcement was a leap forward over the long-running dispute on mining rights and the benefits for the nation include a higher dividends, apart from other revenue from royalties and taxations.
“National interests must be put in the number one,” Widodo said.
According to PT Freeport Indonesia’s 2017 financial, Grasberg mine has proven and probable copper of 38.8 billion pound, 33.9 million troy ounce of gold and 153.1 million toz of silver.
From its activities in selling the minerals from the mine, Freeport Indonesia, which holds the concession rights over the mine, booked $4.4 billion in revenue last year, up from $3.3 billion in the previous year. Net income jumped to $1.28 billion from $579 million.
Despite the Indonesian government is optimistic they can wrap up the complete deal within two months, Arizona-based Freeport has cited there are still some big uncleared matters, including finalizing the company’s long-term rights to operate the mine until 2041. There are also some big questions over how Freeport can retain its operatorship despite it is no longer the biggest stakeholder.
Environmental aspects, including tailings waste treatment are among other unsettled deals.
Rio Tinto also released a statement highlighting unsettled deals.
“Given the terms that remain to be agreed, there is no certainty that a transaction will be completed. Any final agreements will be subject to approval by the necessary government regulators and authorities,” Rio said in a statement on Thursday.
“Given the terms that remain to be agreed, there is no certainty that a transaction will be completed. Any final agreements will be subject to approval by the necessary government regulators and authorities,” Rio Tinto said.
That agreement, which could still collapse, will have Freeport give up majority control but remain operator of the Grasberg copper mine, located in the country’s eastern province of Papua, as Jakarta seeks to gain greater control over its mineral wealth.
Indonesia and Freeport have seen stalled negotiations for more than a year over the miner’s long-term presence in the country.
THe next step after Thursday deal include settling up a joint venture deal, after which the divestment payment will be made before Indonesia can issue a new mining license to Freeport.
Freeport Indonesia has been a big contributor to Indonesia’s state coffer as it has paid about $18 billion in taxes, dividends as well as royalties to Indonesia.