Freeport Indonesia says offers government 9 percent stake

JAKARTA Tue Jul 24, 2012 7:24am EDT

An aerial view of a giant mine run by U.S. firm Freeport-McMoran Cooper & Gold Inc., at the Grassberg mining operation, in Indonesia's Papua province in this July 2005 file photo. REUTERS/Stringer/Files

An aerial view of a giant mine run by U.S. firm Freeport-McMoran Cooper & Gold Inc., at the Grassberg mining operation, in Indonesia's Papua province in this July 2005 file photo.

Credit: Reuters/Stringer/Files

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JAKARTA (Reuters) - Freeport McMoRan Copper & Gold Inc (FCX.N) said it has offered a 9.36 percent stake in its Indonesia operations that run the world's second-biggest copper mine to the Southeast Asian country's government, a move aimed at deflecting pressure from new industry rules on project ownership.

Indonesia's government, which already owns 9.36 percent of Freeport Indonesia, is pushing for a greater share of mining revenues through higher royalties and new rules announced in March that require foreign miners to divest 51 percent of assets after 10 years of production. Analysts have said the rules may be targeted at extracting concessions from Freeport and other major miners.

Freeport said on Tuesday that it was protected from the rules on divestment by the terms of its long-standing Contract of Work -- the agreement with the government under which it operates in the country.

"Even though it is not affected by the new regulations, Freeport has offered an additional 9.36 percent stake to the Indonesian government. The Indonesian government then offered it to the local Papua administration, which has indicated interest," said Freeport Indonesia spokesman Ramdani Sirait. "However, Freeport McMoran also sees an initial public offering as an option for divesting the shares."

Freeport has previously said it is considering an IPO in Jakarta, but has given no indication of the possible size of the offering.

Lawyers say an IPO may be a way for the company to manage the impact of the new foreign ownership rules, and would follow the path taken by Vale SA (VALE5.SA) in listing a unit in Indonesia.

"As listing has generally been considered sufficient to meet equivalent divestment requirements under Contracts of Work, we believe a listing is likely to be considered sufficient to comply," said law firm O'Melveny & Myers LLP in a report on the country's divestment law.

It was not immediately clear how much the Indonesian unit of Freeport, which has a market capitalization of $32 billion, would be worth. Freeport sold a 10 percent stake in its Indonesian operations to Indonesia's Bakrie Group for $212.5 million in January 1992, and then bought half of it back at the end of that year at almost the same price. Since then copper and gold prices have rallied sharply.

According to local media reports, Freeport in 2009 offered a 9.36 percent stake to the Indonesian government for $1 billion, but no deal was reached.

On a sales basis, Freeport Indonesia's output is forecast at 930 million pounds of copper this year, a quarter of the company's total forecast copper production this year. Its Indonesia mine also has the world's largest gold reserves and produces silver.

The local government of Papua, where Freeport's Grasberg mine is located, and a region where a separatist movement has long pushed for a greater share of revenues from resources there, may be unable to afford the stake, industry sources said.

(Additional reporting by Neil Chatterjee and Janeman Latul; Writing by Neil Chatterjee; Editing by Chris Lewis)

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