Freeport to cede control of Indonesian copper mine in US$3.9 billion deal

JAKARTA/TORONTO: FreeportInc said it will sell a majority stake in the world’s second-biggest copper mine to the Indonesian government, seemingly ending a long-running dispute via a series of complex deals worth US$3.85 billion.

The agreement, which could still collapse, will see Freeport give up majority control but remain the operator of the Grasberg mine, located in the country’s eastern province of Papua, as Jakarta seeks to gain greater control over its mineral wealth.

Freeport accepted far less than it could have gotten for its majority Grasberg stake, highlighting the company’s desire to end an acrimonious chapter that had weighed on its shares for more than six years.

The company risked getting nothing had the case moved to arbitration.

Shares of Phoenix, Arizonabased Freeport were down slightly in Thursday afternoon trading.

“Freeport left money on the table to get this deal done,” Freeport chief executive officer Richard Adkerson said on a conference call with investors after a signing ceremony in Jakarta. “It’s a new day for Freeport, and a new day for our working with the government.”

It was not immediately clear if the agreement would be binding. While Freeport and Rio both said the agreement was non-binding, Jakarta said it was a binding deal.

Freeport left money on the table to get this deal done. Richard Adkerson, Freeport chief executive officer

The transactions will be completed this month, said StateOwned Enterprises Minister Rini Soemarno.

The deal could be a boon for Freeport’s stock, which has fallen behind peers. Most analysts believe the stock should trade about 14 per cent above current levels, according to Thomson Reuters data.

“Just to have clarity is critically important because for many investors, Freeport has been uninvestable because of the uncertainty around Grasberg,” Jefferies mining analyst Christopher LaFemina said in an interview.

Under the agreement, Indonesian state-owned miner PT Inalum plans to acquire the Indonesian unit of Rio Tinto , which holds a 40 per cent participating interest in Grasberg, for US$3.5 billion.

That interest would then be transferred to Freeport’s local unit, PT Freeport Indonesia, and converted into a 40 per cent equity holding in the unit via a rights issuance that would then be given to Inalum.

A subsequent purchase of the share of Grasberg held by Freeport unit PT Indocopper Investama, valued at US$350 million, would give Indonesia a total holding of 51.38 per cent in Freeport Indonesia. — Reuters