(Corrects amount of stake that must be divested to 41.64 percent, not 40.64 percent, in paragraph 11.)
By Fergus Jensen
JAKARTA, Aug 30 (Reuters) - 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 percent stake in Grasberg, the world’s second-biggest copper mine, Indonesia’s Energy and Finance Ministries posted on social media #FreeportTaatIndonesiaBerdaulat, 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 divesture 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 late on Tuesday.
The Phoenix, Arizona-based company said it will divest 51 percent 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 $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 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 U.S. firm 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 percent stake in PT-FI that valued the mine at $16.2 billion while the government counter-offered at $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 percent of PT-FI to reach the divestment target after earlier selling a 9.36 percent share.
A state-owned mining holding company involving “several” state companies could take that remaining stake, said State Owned Enterprise Minister Rini Soemarno on Tuesday, while suggesting an independent company would be needed to calculate the divestment valuation.
Under Indonesian law, the central government would have the first claim to the PT-FI stake, followed by the country’s regional governments. State-owned enterprise or regional government enterprises would be next in line followed by private companies or a public offering for the stake. (Writing by Fergus Jensen; Reporting by Jakarta bureau; Editing by Ed Davies and Christian Schmollinger)