July 12, 2018 / 1:46 AM / 2 months ago

UPDATE 2-Indonesia strikes initial agreement to buy majority stake in Freeport mine

* State-owned mining company to take 51 pct stake-president

* Details of Freeport deal due later on Thursday

* Heads of agreement to be signed at 0900 GMT - ministry

* SOE minister has said deal could be worth up to $4 bln (Recasts with president, details)

By Fergus Jensen and Gayatri Suroyo

JAKARTA, July 12 (Reuters) - Indonesia and Freeport-McMoRan Inc have struck an initial agreement for state-owned mining company PT Inalum to take a controlling stake in Freeport’s local unit, government officials said on Thursday, though the final price for the deal remains unclear.

The agreement will give Indonesia control of the Grasberg mine, the world’s second-biggest copper mine, and should cap years of wrangling over the mining rights for the site. Last August, the two sides agreed to let Freeport keep operating the mine while ceding control.

Indonesian President Joko Widodo said an initial agreement had been reached for Inalum to increase its stake in Freeport’s local unit to 51 percent from 9.36 percent. “I think this is 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 told reporters.

President Widodo said the state owned enterprises minister and the finance minister would give more details later on Thursday.

Finance Minister Sri Mulyani Indrawati is scheduled to sign a heads of agreement with PT Freeport Indonesia at 4 p.m. (0900 GMT) on Thursday, a ministry spokesman said earlier.

Freeport Chief Executive Richard Adkerson is expected to attend the signing, along with Inalum Chief Executive Budi Gunadi Sadikin and several other ministers.

It was not immediately clear whether a resolution had been reached on how the mine will be managed by Freeport with Indonesia as the majority shareholder.

A Jakarta-based spokesman for Freeport declined to comment.

During Freeport’s five decades of operating Grasberg, located in Indonesia’s easternmost province of Papua, there has been frequent friction between the government and the company over revenue sharing and the mine’s social and environmental impact.

Phoenix, Arizona-based Freeport has been in negotiations with Indonesia to secure long-term operating rights at Grasberg after the government introduced new rules aimed at giving Jakarta greater control over the nation’s resources.

Efforts to finalise a deal have been complicated by concerns over the environmental impact of the project.

With presidential elections due in 2019, sealing a deal to get a majority stake for Indonesia in one of the world’s biggest mining operations is a priority for President Widodo, who is widely expected to seek a second term in office.

A deal is also critical for Freeport, as it needs long-term certainty to push forward with the massive investment needed to develop an underground mining phase at Grasberg from the current open-pit construction.

As part of the acquisition deal, Inalum was expected to acquire the 40 percent participating interest in Grasberg held by mining giant Rio Tinto.

State-Owned Enterprises Minister Rini Soemarno said last month that Inalum was negotiating a price for the package of Freeport acquisitions of “between $3.5 billion and $4 billion.” (Additional reporting by Maikel Jefriando and Susan Taylor in TORONTO; Writing by Ed Davies; Editing by Richard Pullin and Christian Schmollinger)

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