State-Owned Mining Holding Firm to Build Smelter Soon

Freeport Indonesia mining site (photo: Freeport)

JAKARTA (TheInsiderStories) – Indonesia has finally embarked on the complex process to merge four state-owned mining companies under one giant holding company, a move that will pave the way for the government to take over the shares of PT Freeport Indonesia, a U.S.- based copper and gold company operating a giant mining site in Grasberg, Papua.

Through state-owned company PT Indonesia Asahan Inalum (Persero), the government will take 51 per cent of Freeport’s stakes. Inalum President Director Budi G Sadikin stated that soon after the completion of the legal process, the holding company will unveil its strategic plan as guidance, to carry out Freeport Indonesia’s share acquisition plan, including their constructing a smelter as mandated by a prevailing mining law.

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

Based on the Law on Minerals and Coal, mining companies, including Freeport, are required to develop smelter plant and may not export raw mineral ores.

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

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

Freeport has been mining gold and copper at Grasberg since the early 1970s, and currently owns just over 90 per cent 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 by 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 the smelter, Freeport has committed itself to spending $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. Jakarta’s counteroffer was US$630 million. The government is arguing that Grasberg’s reserves belong to the state and not to the mine operator.

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

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