Grasberg Mine - Photo by Freeport Mcmoran

JAKARTA (TheInsiderStories) – State-owned mining holding company PT Inalum has submitted a price value proposal to purchase 40 per cent Rio Tinto’s participating interest in Freeport Indonesia’s Grasberg contract.

The 40 per cent interest was based on an internal deal between Freeport and Rio Tinto earlier. Based on the deal, Rio Tinto is entitled to a 40 per cent share of all Freeport output after 2022, should Freeport extend its mining operatorship right in the Grasberg mining site. Rio has held talks with Indonesia about a possible exit from the venture.

FCX currently owns 81.28 per cent of local subsidiary Freeport Indonesia, but following intense negotiations, it has finally agreed to shed up to a 51 per cent stake to local entities. The Indonesian government currently owns a 9.36 per cent stake in Freeport Indonesia, through Inalum.

The Energy and Mineral Resources Minister Ignasius Jonan said earlier that in order to speed up the transaction, the government could take over Rio Tinto’s participating interest in Freeport and converted the interest into 40 per cent of Freeport shares. This could be done in stages.

President Director of Inalum Budi Sadikin said the company aims to buy the stake at “a reasonable price”, and expected Rio Tinto’s board to accept the price that they have offered. He denied a report that Inalum had offered US$550 million for Rio’s participating interest in the mine.

“The price won’t be too far from the market price,” Sadikin said on Thursday as quoted by Kontan daily.

In calculating the price valuation of Rio Tinto’s 40 per cent participation rights, Inalum hired Morgan Stanley, PricewaterhouseCoopers (PWC) and Danareksa. To finance the acquisition of Rio Tinto’s property rights, Inalum will seek loans from Japanese banks, the United States and national banks and target to sign the price agreement on April 2018.

There have been few signs of progress since August last year when Freeport promised to divest a 51-percent stake in Grasberg to the Indonesian government in exchange for long-term operating rights. The government currently owns a less-than-10 percent stake in Freeport Indonesia.

The valuation of the stake Indonesia plans to acquire has been a sticking point in negotiations. Given limited progress on the negotiation, President Joko Widodo recently ordered his cabinet ministers to finalize the divestment by April 2018.

“The direction of the President is to settle the divestment of 51 per cent PT Freeport Indonesia shares, which is a symbol of the national sovereignty, by the end of April, has been evaluated and so on,” Minister for Energy and Mineral Resources Ignasius Jonan said early this month.

The divestment of Freeport shares is in accordance with the Government Regulation Number 1, 2017 on the Fourth Amendment of the Government Regulation Number 23, 2010 in Mineral and Coal Business.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

 

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