JAKARTA — Indonesia struck an agreement on Thursday with Freeport-McMoRan Inc and Rio Tinto to buy a controlling stake in the world’s second-biggest copper mine via a series of transactions valued at $3.85 billion. The deal should cap more than six years of wrangling over the rights for the Grasberg mine, located in the country’s eastern province of Papua, as Jakarta seeks to gain greater control over its mineral wealth.
“It’s a new day for Freeport, and a new day for our working with the government,” Freeport Chief Executive Officer Richard Adkerson said on a conference call with investors after a signing ceremony in Jakarta. Under the agreement, Indonesian state-owned miner PT Inalum plans to acquire the Indonesian unit of Rio Tinto, which holds a 40 percent 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 percent 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 percent in Freeport Indonesia.
Freeport, which will hold about 49 percent of Grasberg when the agreement is set, is selling this stake at a discount in order to get the deal done, Adkerson said. Jefferies mining analyst Christopher LaFemina valued the stake that Freeport will sell at $800 million. Freeport has also agreed to build a smelter in Indonesia within five years of the deal being signed, Adkerson said.
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 later this month, said State-Owned Enterprises Minister Rini Soemarno.
The two sides had agreed in principle last August to let Freeport keep operating the mine possibly until 2041 while ceding control over its local division. Thursday’s agreement hammers out the specifics. Aside from increasing government revenues, Jakarta hopes the agreement will serve as “a commitment to a conducive investment climate” in Indonesia, Finance Minister Sri Mulyani Indrawati said at the ceremony.
