Freeport Indonesia’s Shares Divestment Unclear, Loss US$3 Million on Strike

PT Freeport Indonesia is again able to boost copper concentrate production after get permit to export 300,000 ton of copper - Photo by PTFI

JAKARTA (TheInsiderStories) – Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan insist the divestment of PT Freeport Indonesia (FI) not final yet but the agreement is on the way. Previously, Minister of Energy and Mineral Resources Ignasius Jonan said, U.S miner Freeport McMoran Inc. (NYSE: FCX) has agree to divest 51 percent shares of FI.


According to Luhut, if the copper and gold miner agreed to release its shares the government would discuss the divestment mechanism, through strategic sales or holding an initial public offering (IPO). He claimed, that the central government will be given the first option to buy Freeport’s shares, followed by regional administrations and then the private sector.  

At the State Palace, Jonan said, the final decision with Freeport is expected to be final soon. CEO of Freeport Mcmoran Richard C. Adkerson will visit Indonesia to settle the deal in this month.

“This month is final negotiations especially in the field of taxation and regional charges. About 51 percent of divestment they have agreed,” He said.

Meanwhile, FI estimated loss US$3 million after hundreds of former workers damage company’s assets over unemployment problem on Saturday (19/8). It covers all assets including company and worker’s vehicles at check point 28 which become one of the locations of ex-workers strike. Company’s infrastructure in tunnels such as IT and an x-ray system is also wrecked.

“We still calculate how much the loss. But, we estimate the loss is around $3 million or Rp42 billion,” said Sony Prasetyo, Executive Vice President of PT Freeport Indonesia as quoted by Antara News Agency.

The Freeport ex-workers unrest began on Saturday afternoon.Three former workers were injured after police fired tear gas and warning shots to disperse the mob. Freeport said at least four contractors were also minor injured.

After the strike, access to giant Grasberg, the world’s second-largest copper mine was restricted. Freeport Indonesia spokesman Riza Pratama praised local security forces for “quick restoring security control”.

“The clearance process at check point 28 and tunnel started this morning (Sunday). The main supply route also has been cleared, and bus and cargo convoys will resume on a limited basis Monday,” Riza said in written statement.

The unemployment in Freeport occurs following copper export restrictions related to a permit dispute which affects the company loses $188 million in 2016. Freeport Indonesia, which employs more than 32,000 staff and contractors, laid off about 3,000 workers earlier this year.

Currently, the Indonesian Government and Freeport is still negotiating over renewal contract conditions while the company got limited export permission temporary. Four major issues being discussed by both parties are share divestment, smelter, state revenue, and operation contract.

The MEMR has reached agreement with Freeport Mcmoran for further operation its Indonesian unit. The agreement comprises of the smelter development completed before Jan, 2022 and the contract extension until 2031.
Freeport has proposed to get 20 years extension of contract, but the ministry agreed the extension is made by gradually, then 10 years extension could be offered for two stages.
“They (Freeport) can extend their IUPK (special mining license permit), from previously set to expired in 2021, to 2031,” Teguh Pamudji, head of negotiation team who also acts as general secretary at ESDM Ministry said.
Freeport proposed for a nail down tax scheme while the government asks Freeport to pay tax through prevailing scheme. The government also urges Freeport to divest 51 percent shares as Freeport has been operating in Indonesia for more than 10 years.
Riza separately commented, the company is still hoping to get contract extension until 2041, then Freeport will soon build the smelter once Freeport’s proposal is approved.
Based on, Government Regulation Number 1 Year 2017 released in Jan, 2017, made Freeport can no longer export concentrates. This rule makes operational and production activities in the Grasberg Mine disrupted.
The miner also must change the status of the Contract of Work to a Special Mining Business License, if it wants to obtain a concentrate export permit. Minister of EMR, Ignasius Jonan, have issued a export’s recommendation letter to Freeport for eight months periods since February 2017.

The conflict between Indonesia and Freeport built up after the mineral export ban took effect in mid-January. FI, is required to divest 51 percent of its shares, build a smelter within five years and convert its contract in exchange for a permit to export copper concentrate.

The progress in the negotiations comes just before U.S Vice President Mike Pence’s visit to Indonesia and after former President Barrack Obama came. Freeport Mcmoran is known to be politically connected as U.S billionaire Carl Icahn, the third major FCX shareholder. His now special adviser on regulatory reform to US President Donald Trump. (RF)