State-Owned Mining Holding Firm Committed to Build Smelter

Freeport Indonesia mining site (photo: Freeport)

JAKARTA (TheInsiderStories) – Indonesia finally starts the process to merge four state-owned mining companies under one giant holding company, that will pave the way for the government to take over PT Freeport Indonesia‘s shares, a U.S based copper and gold company that operates giant mining site Grasberg, Papua.

The four state owned mining companies that will be grouped under one holding company is tin miner PT Timah Tbk (IDX:TINS), coal miner PT Bukit Asam Tbk (IDX:PTBA), gold miner PT Aneka Tambag Tbk (IDX:ANTM) and aluminum company PT Indonesia Asahan Inalum, which will act as the holding entity.

Through state-owned company PT Indonesia Asahan Inalum, the government would take over 51 per cent of Freeport’s stakes.

Inalum President Director Budi G Sadikin said that after the completion of legal process, the holding company will soon unveil their strategic plan as guidance to realize Freeport Indonesia’s share acquisition plan, as well as building a smelter as mandated by the prevailing mining law.

“If the share acquisition goes ahead smoothly, Inalum will become the major shareholder, along with the smelter plant,” he said without mentioning the detailed location of the smelter.

Based on the Law on Minerals and Coal, mining companies, including Freeport, should develop smelter plant and may not export raw minerals.

Meanwhile, the acquisition of Freeport shares up to 51 per cent by the mining holding company has the potential to increase its holding assets to around Rp200 trillion or approximately $14.7 billion, currently, the assets value of the state owned mining companies are estimated at around Rp90 trillion or $6.6 billion.

Currently, according to him, the divestment process is still being negotiated, involving various parties, including Freeport top management and regional governments. He also expresses his hope that the offered value will be handled by the holding firm of the state owned companies.

Freeport has been mining gold and copper at Grasberg since the early 1970s and currently owns just over 90 percent of Freeport Indonesia. Freeport has been in negotiations to sell down its stake for the better part of a decade, but talks have repeatedly broken down over valuation.

Previously, as quoted from Reuters, Freeport said it expects $1.5 billion in capital spending this year, with $700 million of the total allocated to Grasberg. Apart from building smelter, Freeport has committed to spend $1 billion per year for the next five years to move operations underground at Grasberg with block-cave mining set to commence in early 2019.

Last year, Freeport offered a 10.6 per cent interest in Freeport Indonesia that valued Freeport’s mining site at $16.2 billion. The Indonesian government counter offer was $630 million. The government is arguing that Grasberg’s reserves belong to the state and not the mine operator.

Freeport estimates Grasberg’s underground reserves currently being developed at 11.8 million tonnes of copper and 24 million ounces of gold.

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