Inalum to Takes Over 45.78% Freeport Indonesia Shares for US$3.85B

Signing Head of Agreement Share Sales 42.02% of Freeport Indonesia at Finance Ministry on Juky 12 - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – Indonesia’s state-owned enterprises PT Indonesia Asahan Aluminium (Inalum) takeover 45.78 percent shares of PT Freeport Indonesia (PTFI) from Freeport-McMoRan Gold & Copper Inc. (NYSE: FCX) with worth US$3.85 billion, said one senior official on Thursday (12/07). Currently Inalum and PT Indocopper Investama, local unit of Freeport-Mcmoran have 9.36 percent stake in PTFI, each.

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.

Based on the agreement, Inalum will take over 45.78 percent shareholder of PTFI from Arizona-based company including Indocopper shares for $3.85 billion. At the end the miner will own 51.38 percent Freeport Indonesia’s shares.

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.

“Today just signed the HoA between Inalum, Freeport-Mcmoran, PTFI, Rio Tinto Indonesia Holding Ltd and Rio Tinto Nominees Ltd. This agreement is a strategic step to realize the agreement between the government and Freeport-Mcmoran on August 27, 2017,” Indrawati said in press conference at her office.

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 Soemarno expect the completion of the share sale of Freeport Indonesia end of July. She 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.
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