The government is preparing to make a detour from its course to acquire gold and copper miner PT Freeport Indonesia (PTFI), in which it might have to persuade Anglo-American miner Rio Tinto to sell its participating interest in Papua’s Grasberg mine, the world’s largest gold and second-largest copper mine.
Talks between the government and PTFI, the local unit of United States-based mining giant Freeport-McMoRan (FCX), have gone nowhere over the latter’s future operation in the country. It recently extended the negotiation deadline until next January following the failure of the two parties to settle by the initial October deadline.
The government has demanded that FCX increase Indonesian ownership in PTFI to 51 percent from the current 9.36 percent, among other conditions, in return for the extension of PTFI’s operating permit, slated to expire in 2021.
State-Owned Enterprises Ministry deputy for mining strategic industries and media affairs, Fajar Harry Sampurno, confirmed that it was considering obtaining Rio Tinto’s participating interest to seal the deal.
“We are still negotiating the arrangements. There are some very technical issues that need to be addressed, especially considering the agreement made between Rio Tinto and FCX in the 1990s,” he said recently.
FCX and Rio Tinto established in 1996 an unincorporated joint venture, paving the way for the latter to control 40 percent interest up to 2022 in certain assets and future production of Grasberg’s Block A, where PTFI’s proven and probable reserves and all of its mining operations are located. Rio Tinto also has an option to get 40 percent interest in all production from Block A after 2022.
Sammy Hamzah, the non-executive director of Rio Tinto Indonesia, previously told The Jakarta Post that it might walk out of the joint venture as the government’s flip-flop policy in the sector had negatively affected the country’s investment climate. Rio Tinto also reported in January that it did not have any production from Grasberg since 2014, when its share was a mere 7,700 tons of copper.
Fajar said the government was still discussing whether the 40 percent interest would be converted into shares and if state-owned aluminum producer PT Indonesia Asahan Aluminium (Inalum) could take over in advance.
It recently issued a regulation as the legal basis for Inalum to soon become a mining holding company overseeing three state miners, namely PT Aneka Tambang (Antam), PT Timah and PT Bukit Asam. Through the regulation, the government will also transfer its 9.36 percent shares in PTFI to the aluminum producer. The establishment of the mining holding firm will jack up Inalum’s assets to an estimated Rp 89.4 trillion (US$7.28 billion) by taking into account 9.36 percent of PTFI’s shares.
The remaining 41.64 percent shares to be taken over from PTFI are estimated to be worth around Rp 110.6 trillion.
Previously, Energy and Mineral Resources Minister Ignasius Jonan said Rio Tinto had opened up a chance to sell its interest option in Grasberg for $3.5 billion.
Recapital Securities analyst Kiswoyo Adi Joe said it might be less costly for the government to buy 40 percent of PTFI from Rio Tinto through the conversion of the company’s interest into shares. However, he noted that “if PTFI releases Rio Tinto’s shares portion through a rights issue, the government’s 9.36 percent ownership will also be diluted,” forcing it to renegotiate the remaining targeted shares.
Source: Viriya P. Singgih / The Jakarata Post
27 November 2017