Executive Vice President PT Freeport Indonesia Tony Wenas at the US-Indonesia Investment Summit 2018 in Jakarta (27/09) - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – Indonesian government through the state-owned miner PT Indonesia Asahan Aluminium (Inalum) will sign the Sales and Purchase Agreement on the share sales of PT Freeport Indonesia (PTFI) with US’s Freeport-Mcmoran Gold & Copper Inc. (NYSE: FCX) and Australia’s Rio Tinto Rio Limited (ASX: RIO), showed the invitation to Finance Minister Sri Mulyani Indrawati on Thursday (27.09).

As we know, Inalum will become around 46 percent shareholder of PTFI, the world’s second-largest copper mine, by buying shares from Freeport-Mcmoran and Rio Tinto for US$3.85 billion.

Currently Inalum and PT Indocopper Investama, a local unit of Freeport-Mcmoran have 9.36 percent stake in PTFI, each. At the end the Arizona-based company miner will own 51.38 percent Freeport Indonesia’s shares.

The managing director of PTFI Tony Wenas at the US-Indonesia Investment Summit 2018 admitted there will be something to sign today. But he did not give more explanation on the announcement.

“This afternoon there will be a milestone announcement. We aimed to close deal as soon as possibel to close the deal by the end of this year,” he said at the panel discussion on Thursday (27/09).

The Signing Invitation of PT Freeport Indonesia

The signing of Heads of Agreement (HoA) between Freeport-Mcmoran’s Chairman & CEO Richard C. Adkerson and President Director Inalum Budi Gunadi Sadikin at the Ministry Finance in Jakarta witnessed by Finance Minister Sri Mulyani Indrawati, Minister of Energy and Mineral Resources (MEMR) Ignatius Jonan, Minister of State Own Enterprises (SOEs) Rini Soemarno and Environment and Forestry Minister Siti Nurbaya has been made on July 12.

As compensation for this agreement, the government promised to extend the Special Mining Business License until 2041, divided into two stages of every 10 years.

Last year, the government and Freeport-Mcmoran made an agreement to complete the contract renegotiation between the two sides. The agreement includes divestment of 51 percent PTFI shares, build smelter in Indonesia, higher state revenues greater than Contract of Work and a maximum extension until 2041.

SOEs Minister Rini Soemarno added, that Rio Tinto will get $3.5 billion from the transfer of 40 percent participating interest at the Grasberg mine in Papua and Freeport-Mcmoran raise $350 million from the sale of Indocopper’s shares.

After the signing of HoA, said Rini, the deal will first involve a purchase by Inalum of Rio Tinto’s 40 percent participating interest in Grasberg which will be converted into ownership in PTFI.

Next, Freeport Indonesia will conduct a rights issue, which will see its holding’s ownership diluted to 80.64 percent from 90.64 percent, not accounting the Rio Tinto deal, Inalum’s to 5.6 percent from 9.36 percent. The final step for Inalum is to purchase the remaining PTFI shares from Indocopper.

Sadikin added that currently, Inalum has grasped the trust of the loan by 11 banks, foreign and local, to fund the acquisition of 51.38 percent of PTFI shares.

Freeport has asked for a 20-year extension to its contract due 2021 to mine Grasberg, operated by its subsidiary PTFI. The government also seeks higher revenue from PTFI’s operation and a commitment that Freeport will set up copper smelter domestically.

Grasberg, located in Papua, is one of the world’s largest copper and gold mines. Freeport has been mining Grasberg since 1967 and received a contract extension in 1991. Its operation was based on a contractual scheme called mining contract of works, which the government has phased out since the introduction of new mining law in 2009.

Previously, the Indonesian government’s extended the temporary special mining business license of PTFI to July 31. The renewal of a temporary special business license has been signed on June 29, 2019. The regulation is written in the Decree of the Minister of EMR No. 1872/K30MEM/2018.

Freeport can export copper concentrates with a certain amount of customs duty. Furthermore, the EMR Ministry has issued an extension of concentrate export license up to February, 2019 with a volume of 1,247,866 metric ton.

Freeport needs the temporary license since export of unrefined mineral ores was banned for miners operating based on mining contract of works.

MEMR Jonan hopes that with signing of this HoA, the added value of copper produce by Freeport-Mcmoran can be improved through the smelter development with a capacity of 2-2.6 million tons per year in the next 5 years.

While Richard Adkerson asserted by the transitional process of part of Freeport Indonesia‘s share ownership, the parties agree on the operation of its unit until 2041 with a mechanism to be further detailed.

This agreement, said Adkerson will strengthen the partnership that has been established between government and the U.S’s miner as shareholders of PTFI.

Furthermore, Indrawati stated that,”the government is committed to ensuring that the investment climate to provide certainty to investors who invest in lndonesia.”
Based on the 2017 financial statements were audited, PTFI posted revenue of $4.44 billion, up from $3.29 billion in 2016. The company also posted net income of $1.28 billion, up from last year worth of $579 million.
PTFI has proven and probable reserves for copper of 38.8 billion pounds, gold of 33.9 million troy ounces  and silver amounted to 153.1 million troy ounces.
Meanwhile in 2017, Inalum posted revenues of $3.5 billion in consolidated net income reached $508 million. The state-owned mining holding also recorded a nickel reserves and resources of 739 million tons, 613 million tons of bauxite, 1.1 million tons of tin, 11.5 million tons of coal, 1.6 million tons of gold and silver 16.2 million tons.

 

FCX, RIO and Inalum’s subsidiary shares price such as PT Timah Tbk (IDX: TINS), PT Bukit Asam Tbk (IDX: PTBA), PT Aneka Tambang Tbk (IDX: ANTM) has pushed higher followed the closing deals. Today, Rio Tinto’s U.S.-listed shares rose 1.2 percent in premarket trade and Freeport’s stock rallied 1.8 percent.

According to analyst from Kresna Sekuritas Robertus Yanuar Hardy for the three units of Inalum businesses, the acquisition of PTFI shares has limited impact caused PTBA, ANTM, and TINS ​​are different entities.

He said, the direct impact, especially financially after the acquisition of Freeport, was minimal. But its different if in the future, ANTM will be prioritized to work on smelters with Freeport and PTBA as a provider of energy, explains Hardy.

Email: linda.silaen@theinsiderstories.com

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The Insider Stories Founder Linda Silaen has a solid, proven history, established over more than a decade as a journalist with a leading internasional news organization, of being the first with the biggest economic news stories in Indonesia. Specializing in corporate news, Linda is also a veteran of some of the biggest macroeconomic and general news stories as Indonesia rapidly transforms into a major market economy. One of the founders of the original blog from which this company developed, Linda’s knowledge of investors’ information communications and data us developed from unrivaled networking skills that make her a well-known name among CEOs, bankers, government officials and private equity investors both in Indonesia and other countries.

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