UPDATE 1-Freeport Indonesia to offer 5 pct stake to public, in smelter talks
* Contract talks ongoing for Freeport's Grasberg copper and gold mine
* Current Grasberg contract expires 2021, open-pit mining due to end after 2016
* Freeport wants renewal before making investments of about $15 billion
By Yayat Supriatna
JAKARTA, July 26 (Reuters) - Freeport McMoRan Copper & Gold Inc's Indonesian subsidiary will offer a 5 percent stake to the public and is in talks with three local smelters on copper concentrate supply deals, company and government officials said on Friday.
The moves could help pave the way for a deal in long-running contract talks with the Indonesian government, which is pushing miners, especially foreign-owned operations like Freeport's unit, to add more value within the country.
Freeport's current contract to operate Grasberg in Papua province, the world's second biggest copper mine, expires in 2021. The Arizon-based company wants a new contract completed before it makes investments of around $15 billion to extend the life of the complex after open-pit mining ends.
"The renegotiation talks are still ongoing," Industry Minister Mohamad S. Hidayat told reporters after talks with Rozik Soetjipto, CEO at Freeport Indonesia.
Contract renegotiations have rumbled on for more than a year, with the government seeking bigger royalty payments, commitments on domestic processing and greater divestment by foreign miners.
The government has asked all miners to submit plans to build refineries or smelters ahead of a January 2014 ban on raw mineral exports, while foreign miners must sell 51 percent of their assets after 10 years of production.
"Freeport Indonesia promised to comply with the Indonesian mineral and coal law (for 2014) but has no plans to build smelters," Hidayat added. "Freeport Indonesia is preparing MoUs with three Indonesian smelter companies."
The three local copper smelter firms in talks with Freeport are PT Nusantara Smelting, PT Indosmelt and PT Indovassi, said Freeport Indonesia CEO Soetjipto. Earlier this year, PT Indosmelt said it was in talks with Freeport over a supply deal.
Freeport is the majority shareholder in the Indonesian unit, with the Indonesian government the only other shareholder with a 9.36 percent stake.
Freeport said a year ago it had offered a further 9.36 percent stake in its local subsidiary to Indonesian buyers, and it has previously said it was considering a share offer in Jakarta without indicating a possible size.
Freeport Indonesia only resumed full operations two weeks ago after suspending operations when 28 people died following a training tunnel cave-in in May.
The open-pit mine normally produces between 140,000 tonnes and 150,000 tonnes of ore per day, while output from the underground operations is 80,000 tonnes.
Freeport declared force majeure - an inability to meet contractual obligations due to circumstances beyond its control - on copper shipments after the accident.
The force majeure had not yet been lifted, a Freeport Indonesia spokeswoman said in an email this week, while underground mining and shipments were not yet running at full capacity.
The Grasberg mine ships around 35 percent of its production for further processing in Indonesia, and the remainder goes to Japan, Korea, China and Spain, say government officials.
The government hopes to conclude the contract talks by the end of year. Indonesian's Trade Minister has said May's accident should not delay a deal being reached.
As well as talks with the government to renegotiate a new mining contract to replace its current 30-year contract that expires in 2021, Freeport Indonesia is also in pay talks with workers unions.
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