Photo by Finance Ministry

JAKARTA (TheInsiderStories)–After years of discussion, the Indonesian government and U.S’s miner Freeport-Mcmoran Gold & Copper Inc. (NYSE: FCX) will sign the head of agreement of PT Freeport Indonesia (PTFI) today, said Indonesian president on Thursday (12/07). No further details on the agreement.

Indonesian President Joko Widodo on Thursday (12/07) said Freeport and Inalum have reached an initial agreement related to the increase of Indonesian shares in Freeport to 51 percent from recently 9.36 percent.

He added that Freeport has been managing the mine for almost 50 years with a very small portion of Indonesian ownership. The government has been negotiating for 3.5 years to raise its stake in the mine located in Papua.

“This is 3.5 years that we try very hard, do not think it is easy, and we negotiate very intense in the last 1.5 years,” he told reporters at the sidelines one event in Tangerang.

However, Widodo is reluctant to mention the divestment valuation. The technical issue related to the divestment are undertaken by State Minister for State Owned Enterprises Rini Soemarno, Finance Minister Sri Mulyani, and Minister of Energy and Mineral Resources Ignatius Jonan.

He expects the increase of Indonesia’s share in Freeport could increase state revenues.

“So that the value-added mining commodities can be enjoyed by Indonesian. The national interest must be prioritized, “he added.

Last June, Minister of Energy and Mineral Resources (MEMR) Ignatius Jonan visited the United States and met with Freeport-McMoran’s CEO Richard Adkerson discussed matters related to the continued of its mine’ operation in Papua province.

At the meeting Jonan said, the agreement has been completed, especially on the business certainty and the management control. He added, the government targets the 51 percent stake divestment of PTFI to be completed this month.

Initially, the government planned to divest it into two stages by acquiring global miner Rio Tinto Group’s shares in the Grasberg mine, but later, the scheme has changed to one stage. Jonan assured that the process is still in line with the government’s plan and both parties will establish a healthy joint venture.

Previously, Freeport-Mcmoran has asked for a guarantee on rights to mine Grasberg up to 2041 before committing to billions of dollars of planned underground mine investments and build a second copper smelter in Indonesia.

Grasberg, located in Papua, is one of the world’s largest copper and gold mines in terms of ore reserves and production. Rio Tinto has a joint venture with Freeport for a 40 percent share of production above specific levels until 2021 and 40 percent of all production after 2022.

The Indonesian government will not give the contract extension if four points namely 51 percent divestment, smelter development, investment assurance, taxation and extension of operations have not yet come to an agreement.

The Indonesian government and Freeport-Mcmoran are negotiating those four points for more than a year.  Indonesian consortium lead by state-owned mining company PT Indonesia Asahan Aluminium (Inalum) will acquire 51 percent of Freeport-Mcmoran’s stake.

President Director of Inalum Budi Gunadi Sadikin earlier said the company has submitted Freeport’s share price calculation to President Joko Widodo. Sadikin did not deny the price of 40 per cent of Freeport Indonesia is around US$3 billion to $5 billion, but he cannot reveal the exact price.

He considered Freeport’s share price is good enough for Inalum. “The valuation should get the best figures,” he said.

He added the valuation is quite good based on the economic value of copper and gold mine operated by PTFI. One of the reserve in Kucing Liar mine can be exploited until 2061.

Rio Tinto that owned 40 percent of the participation interest in Freeport Indonesia earlier announced to be ready to accept $3.5 billion of Freeport divestment.

Previously, the Indonesian government’s extended the temporary special mining business license of PT Freeport Indonesia to July 31, 2018. 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.

The Arizona-based company previously held a current temporary special mining business license that will expire on July 4. This license is the second after the former license expired in December 2017.

This extension entitled Freeport their operations in the Grasberg Mine in Papua until the end of this month. In the revised Decree, Freeport is granted to export processed and concentrated products.

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

According to the Government Regulation 01/2017 on Mineral and Coal Mining Business Activities, holders of mining contract of works are prohibited to mining commodities without processing.

Email: fauzulmuna@theinsiderstories.com

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