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

Oman Daily Observer - - INTERNATIONAL -

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

The trans­ac­tions will be com­pleted this month, said State-owned 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 $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 $350 million, would give In­done­sia a to­tal hold­ing of 51.38 per cent in Freeport In­done­sia.

Es­ti­mates on the value of that stake vary. Jef­feries val­ues it at $800 million, while some es­ti­mates are lower.

Freeport, which will hold about 49 per cent of Gras­berg when the agree­ment is set, has also agreed to build a smelter in In­done­sia within five years of the deal be­ing signed, Ad­ker­son said. The two sides had agreed in prin­ci­ple last Au­gust to a deal. Thurs­day’s agree­ment ham­mers out most of the specifics.

Rio for its part said it hoped for bind­ing agree­ments by the end of the year, adding in a state­ment “there is no cer­tainty that a trans­ac­tion will be com­pleted.”

In­done­sian Pres­i­dent Joko Wi­dodo praised the agree­ment as “a leap for­ward.”

“We have to have a larger amount of in­come from tax, roy­al­ties, div­i­dends ... so the value of our min­ing sec­tor can ben­e­fit every­body,” Wi­dodo said at the cer­e­mony.

— Reuters

Freeport Mcmoran Chief Ex­ec­u­tive Of­fi­cer Richard Ad­ker­son, smiles dur­ing a press con­fer­ence as In­done­sia’s En­ergy and Min­eral Re­sources Min­is­ter Ig­na­sius Jo­nan and In­done­sia’s Fi­nance Min­is­ter Sri Mulyani In­drawati look on in Jakarta.

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