Indonesia’s SOEs, Local Government Merges to Buy Freeport Shares

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JAKARTA (TheInsiderStories) – U.S mining giant Freeport-McMoRan Inc. (FCX) had agreed to divest a 51 percent stake in its Indonesian unit, bringing an end to a fierce standoff with the country’s government over mining rights.

The agreement will allow the firm to continue operating its vast copper and gold mine in Indonesia’s Papua province until 2041, but require it to build a smelter and give the government a majority stake in the operation.

Deputy for Minister of State-Owned Enterprises (SOEs) Fajar Harry Sampurno remarked that after the authority owns 9.36 percent of the shares, other local businesses could take over 41.64 percent of the stocks.

“The minister clearly expects that a SOEs could own the shares,” he told press on Monday.

According to the initial plan, holding of the state-owned mining enterprises supervise PT Inalum, PT Aneka Tambang Tbk (IDX: ANTM), PT Tambang Bukit Asam Tbk (IDX: PTBA), and PT Tambang Timah Tbk (IDX: TINS), will merge to form consortium to buy FCX’s share in PT Freeport Indonesia.

However, instead of automatically owning the shares, the holding company will be first listed in a special consortium along with other businesses. He has mapped-out the state agencies that will support the government’s attempts to take over Freeport’s 51 percent divestment.

State Social Security Agency for Workers (BPJS Ketenagakerjaan) was one of the many that were invited to participate in executing Freeport Indonesia`s share divestment.

BPJS Ketenagakerjaan manages an employee social security fund worth Rp219 trillion (US$16,4 billion), making it the biggest fund in the country.

The pension fund company’s President Director Agus Santoso met with SOEs Minister Rini Soemarno on Monday last week over the Freeport divestment.

BPJS Ketenagakerjaan is set to join the Indonesian Consortium that consists of Indonesia Asahan Aluminium (Inalum), Papua Provincial Government, and districts that are directly in contact with Freeport’s work area. The consortium stated that Inalum will receive 55 percent of the share, BPJS Ketenagakerjaan will receive 25 percent, and regional government will be given 20 percent.

Indonesia’s Energy and Mineral Resources Minister Ignasius Jonan announced on Tuesday (8/29), the government has concluded a deal with Freeport-McMoRan which will allow the company to apply for a permit to continue operations at its giant Grasberg gold and copper mine in Papua.

According to Jonan, Freeport can apply for a 10-year permit extension over the near term, to extend its current permit, which will expire in 2021. This means the world’s largest publicly-traded copper company could secure the privilege of extending its contract five year before it expires.

“Freeport is committed to develop a smelter until Jan, 2022 since Special Mining Business License is signed,” the Minister said at in a press briefing in Jakarta after meeting with Freeport McMoRan’s Chief Executive Officer Richard Adkerson on Tuesday joined with Finance Minister Sri Mulyani Indrawati.

The Phoenix, Arizona-based company has been in lengthy discussions with the government of Southeast Asia’s largest economy over a number of issues that will affect its operations in the world’s second-biggest copper mine.

Indonesia’s mining policy requires, among other, Freeport to divest its stake up to 51 percent to local entities, build a new smelter to add value to its export commodities, to extend its 30-year existing contract.

“Freeport will divest 51 percent of its stake [in Freeport Indonesia –the local arm that secures the mining permit] and this is being negotiated in details and will be attached in the IUPK,” Jonan said, adding that President Joko Widodo, has requested the new special mining license to be finalized this week.

He said the price over Freeport’s share will be discussed later.

Minister Indrawati explained, contract extension for Freeport must ensure that the government’s demands for the U.S firm to divest 51 percent of its shares in its local arm and construct a smelter at the Grasberg site to be proceeded smoothly.

She added the government is working to ensure that the state revenue from tax and royalty payments from Freeport’s operation in Grasberg is better than the existing contract of works signed in 1967 and renewed in 1991.

She also said that the finance minister is coordinating with government-related entities, including state-owned enterprises, local government enterprises, the local government, to the private sector, over who will buy Freeport’s planned divested shares.

Adkerson informed reporters at the same press briefing, event that the miner is now working to build underground mining operations, a critical point that needs a huge investment of as much as US$17 billion to $20 billion between today until 2031. “It is a big issue to have concluded an agreement with the government,” he said.

He also said the mining giant is firm on its commitment to divest its stake in the Grasberg operation as well as developing a new smelter at the mining site, as required by the Indonesian government. “We agree to increase government ownership to 51 percent over time, in a way, on market price value,” he said.

It was feared that copper concentrate exports from the Freeport operation in Indonesia could have been interrupted, if the two sides had failed to reach a deal on a new mining permit before its temporary export permit expires in October.

The U.S. mining giant ships about two-thirds of the copper concentrate it produces from the Grasberg mine, while keeping the remainder to be processed domestically.

US$1= Rp13,300

Writing by Elisa Valenta