Rio’s Grasberg exit sets up end to copper mine’s three-way wrangle
MELBOURNE: Rio Tinto Group is said to be ready to accept a US$3.5bil deal with Indonesia for its interest in the giant Grasberg operation, paving the way for an end to a protracted, three-way wrangle over the world’s No. 2 copper mine.
A deal for Rio’s exit still depends on Freeport-McMoRan Inc striking an agreement to transfer some of its stake to a local firm, according to people with knowledge of the discussions.
No accord has been signed and an agreement may still not be reached, according to the people, who asked not be identified because the matter is confidential.
State-owned PT Indonesia Asahan Aluminium, known as Inalum, plans to acquire Rio’s joint venture interest in the operation under a wider arrangement aimed at taking control of Freeport’s local unit, which owns and operates Grasberg, said the people.
Indonesia and Freeport have been locked in talks for more than a year to agree terms for the miner to cede majority ownership in Grasberg, part of a deal that will allow the producer to keep operating in the country.
The US miner jumped Tuesday, while Rio pared a loss in New York and then closed near a seven-year high in Sydney yesterday as a deal that hands Inalum control of Freeport’s local unit promises to deliver a win for all three sides.
Freeport would retain exposure to what chief executive officer Richard Adkerson described last week as a “remarkable” asset, while Rio can exit a problematic region and reward shareholders with some of the proceeds, according to Andy Forster, senior investment officer at Argo Investments Ltd, which manages more than A$5bil (US$3.8bil).
An agreement between Rio and Indonesia is the key to spur a final resolution of the mine’s ownership, according to Freeport’s Adkerson. The US producer has been acting as a “match-maker” to its current and future partners, he said last week in a speech at a Miami conference.
“They are negotiating basically, one thing – the value of that transaction,” Adkerson said.
“If that happens, I believe there will be strong momentum to finalise this process quickly – and that appears to be the desires of the government from the top.”
Foreign miners have been given until 2019 to comply with divestment obligations, imposed amid a push by President Joko Widodo’s government to exert more local control over the nation’s resources.
A previously agreed pact outlined plans for investment of as much as US$20bil in Grasberg through 2031, including the construction of a smelter.
“Discussions between Rio Tinto, Inalum and Freeport are ongoing, including as to price,” Rio said yesterday in a statement. “No agreement has been reached, and there is no certainty that binding agreements will be signed.”
Inalum declined to comment, while a spokesman for Freeport didn’t respond to a request for comment. Riza Pratama, a spokesman for PT Freeport Indonesia, said the company hopes to conclude negotiations by the end of June.
For Indonesia, a deal would bring the asset into line with the country’s ambition for its natural resources “to be controlled by the state and be used for the prosperity of the nation,” said Ahmad Redi, mining law professor at Tarumanagara University in Jakarta.