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Indonesia strikes initial pact to buy majority stake in Freeport mine
July 13, 2018
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JAKARTA: Indonesia and Freeport-McMoRan 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 per cent from 9.36 per cent. “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 to sign a heads of agreement with PT Freeport Indonesia. 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.

REVENUE SHARING

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 per cent 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.”

Meanwhile, Indonesia’s trade minister said the country is scrapping plans to bring back an import tax on soyabeans, ahead of a meeting to persuade US officials to keep the Southeast Asian nation on a list of countries that receive preferential trade terms.

Indonesia, which buys most of its soyabeans from the United States to churn out foods such as tofu and local dish tempe, removed the import tax in 2013 to quell rising food inflation.

But the agriculture ministry had been quoted by media in the past few years as requesting a reimposition of the tax to help boost prices of the commodity for local farmers.

“Tofu and tempe use soybeans from the United States and they are hard to replace, so we can’t put up a tariff as a barrier,” Enggartiasto Lukita, Indonesia’s trade minister, told reporters.

Reuters

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