Indonesia cheers Freeport ‘win’ as Grasberg valuation fight looms
JAKARTA: Indonesia’s government left no doubts as to who it believes got the better deal in its landmark agreement with Freeport McMoRan Inc on the future of the Grasberg copper mine.
After Freeport agreed to divest a 51 per cent stake in Grasberg, the world’s second-biggest copper mine, Indonesia’s Energy and Finance Ministries posted on social media # FreeportTaatIn donesiaBerdaulat, or ‘Freeport is obedient, Indonesia is a sovereign state’”.
The bombastic statement illustrates Indonesia’s view that the dispute with Freeport over the mine was all about asserting the country’s rights to its mineral resources. While Indonesia can point to a victory that appeals to nationalist sentiment, pinning down the details on the divestment indicates a further fight with Freeport.
Indonesia’s President Joko Widodo was the driving force behind the agreement demanding the divestment, a new smelter at the mine and that Freeport pay higher taxes, Energy and Mineral Resources Minister Ignasius Jonan told reporters on Tuesday.
The Phoenix, Arizona- based company said it will divest 51 per cent of PT Freeport Indonesia ( PT- FI) and build a second smelter at Grasberg, in the eastern province of Papua, and will also commit to invest up to US$20 billion in the mine.
In return, Freeport can “immediately” apply for a 10-year extension of its operations from 2021, and potentially maintain operational control through 2041, paying fixed, albeit higher, tax and royalty rates during that term.
“While there are a lot of issues still to be worked out, politically this is a win for the government,” said Keith Loveard, a senior analyst at Jakarta-based Concord Consulting.
“It has taken on a big US firm
While there are a lot of issues still to be worked out, politically this is a win for the government. Keith Loveard, Concord Consulting senior analyst
and appears to have won.”
The biggest of the raft of issues to resolve is how the divested shares will be valued and who will buy them.
Last year, Freeport offered a 10.64 per cent stake in PT-FI that valued the mine at US$16.2 billion while the government counter- offered at US$ 630 million. Freeport believes that any Grasberg valuation should include the mineral resource, while Indonesia maintains that resource is essentially held by the country and not the mine operator.
“There’s more reserves there than up to 2041 - these aren’t theirs,” said Jonan on Tuesday.
Freeport has to sell 41.64 per cent of PT-FI to reach the divestment target, adding to a 9.36 per cent share the government already holds.
Indonesia hopes that the divestment would be made in one block rather than spread out and would be completed by the end of 2018, said State Owned Enterprise Minister Rini Soemarno.
On Wednesday, Soemarno said a state- owned mining holding company involving “several” state companies could take that remaining stake, and that an independent company will be appointed to calculate the divestment valuation.
According to Fajar Hari Sampurno, head of mining, strategic industries and media at the State Owned Enterprise Ministry, the government is forming a consortium involving the central government and regional administrations to purchase the stake.
“The consortium will look for funding sources – it could be from equity, loans, obligations (or) pension funds,” Sampurno said. — Reuters