Credit: Ministry of Energy and Mineral Resources

JAKARTA (TheInsiderStories)–The state-owned mining company PT Indonesia Asahan Aluminium (Inalum) has received US$5.2 billion loan offers from 11 local and foreign banks to increase the company stake in PT Freeport Indonesia to 51 per cent, said the President Director Budi Gunadi Sadikin on Thursday (12/07).

Inalum will not take all the loan offers as the company only needs US$3.85 billion to increase the share to 51 per cent from currently 9.36 per cent. In addition, Inalum already has US$1.5 billion from the internal cash.

As much as US$3.5 billion is used to buy 40 per cent of Rio Tinto‘s participation interest in Freeport Indonesia and another US$350 million to take the remaining share to achieve majority shareholder.

“We only need US$3.85 billion, we are looking for the cheapest,” he added.

Several banks that are offer loans are Standard Chartered, HSBC, CIMB Niaga, BNI, BRI, and MUFG.

Meanwhile, the Association of State-Owned Banks ready to disburse US$1.5 billion loans for Inalum to acquire Freeport Indonesia stake.

The Corporate Banking Director of PT Bank Negara Indonesia (IDX: BBNI) Putrama Wahju Setyawan said the loan-syndication is offered by BBNI, PT Bank Rakyat Indonesia (IDX: BBRI), and PT Bank Mandiri (IDX: BMRI), with each bank, is ready to disburse  US$500 million.

The Indonesian government and Freeport McMoRan signed head of agreement (HoA) of Freeport Indonesia divestment yesterday (12/07).

State-Owned Enterprises Minister Rini Soemarno said the signing of the agreement does not mean Inalum has officially owned the 51 per cent of Freeport stake. She said the official divestment will wait for the finalization of the joint venture agreement. After this issue is clear, Inalum will pay the acquisition fund.

The next phase is the Ministry of Energy and Mineral Resources will issue a special mining business license which aborts the current work of contract status.

She said the divestment must be completed by end of July so that the government does not need to extend temporary special mining business license that will expire July 31, 2018. However, Inalum asked for two months to complete the transaction.

According to the head of agreement, the Freeport divestment deal will complete in three steps. The deal will first involve a purchase by Inalum of Rio Tinto’s 40 per cent participating interest in Grasberg which will be converted into ownership in PT Freeport Indonesia.

Next, Freeport Indonesia will conduct a rights issue, which will see Freeport McMoRan’s ownership diluted to 80.64 per cent from 90.64 per cent, not accounting the Rio Tinto deal, and Inalum’s to 5.6 per cent from 9.36 per cent. Inalum will then get a 40 per cent stake from the Rio Tinto deal, giving the company 45.6 per cent ownership in the company.

The final step is for Inalum to purchase the remaining 5.4 per cent of Freeport Indonesia, which will come from the stake currently held by PT Indocopper Investama, which is also a subsidiary of Freeport McMoRan.

The divestment mandatory is due to mining law introduced in 2009, foreign-owned miner like Freeport Indonesia must divest 51 per cent ownership to the local entity.

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.

In addition to the divestment, the Indonesian government and Freeport is negotiating three other points namely smelter development, investment assurance, and taxation and extension of operations.