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Deal Would Make Indonesia Majority Owner Of Grasberg Mine

Kitco News

(Kitco News) - Indonesia’s government would become the majority owner of the giant Grasberg copper and gold mine in the country under non-binding agreements reached with mining giants Freeport-McMoRan Inc. (NYSE: FCX) and Rio Tinto, the companies announced Thursday.

Indonesian state-owned PT Indonesia Asahan Aluminium (Inalum) would pay $3.85 billion under the deal, Rio Tinto and Freeport said.

Rio Tinto said it would get $3.5 billion for its entire interest in Grasberg. Freeport said it would receive $350 million.

The Grasberg mine is currently 90.64% owned by Freeport and 9.36% by the government. Rio has been entitled to a joint-venture share of the output under a 1996 agreement.

Inalum will contribute the Rio Tinto interest to Freeport’s local unit, PT Freeport Indonesia, which will expand PT-FI’s asset base, Freeport explained. Following completion of the transaction, Inalum will own 51% of PT-FI (subject to an agreement between shareholders to replicate the joint-venture economics), while Freeport will own 49%.

With the deal, Freeport said its share of future cash flow from the expanded PT-FI asset base, combined with proceeds from the transaction, would be comparable to its existing share of future cash flow. Freeport will continue to manage the operations of PT-FI.

“This agreement marks a significant milestone toward establishing a new long-term partnership with the Republic of Indonesia to provide long-term stability for PT Freeport Indonesia's operations,” said Richard C. Adkerson, vice chairman of the Freeport board, president and chief executive officer.

“Through this transaction, the government will achieve its ownership objectives in a manner that preserves the long-term value for FCX shareholders and the people of Indonesia through 2041….We look forward to a mutually positive and beneficial partnership with Inalum that will continue to provide substantial benefits to the people of Papua; the Republic of Indonesia; and to our local employees, suppliers and contractors while generating attractive returns for our shareholders.”

Indonesian President Joko Widodo called the tentative deal “a leap forward,” according to a Reuters report. “We have to have a larger amount of income from tax, royalties, dividends…so the value of our mining sector can benefit everybody,” Widodo said.

The transaction is expected to close during the second half of 2018, Freeport said. This will be subject to the negotiation and documentation of certain agreements, including PT-FI's long-term mining rights through 2041 in a form acceptable to Freeport.

“Given the terms that remain to be agreed, there is no certainty that a transaction will be completed,” Rio Tinto said in its announcement. “Any final agreements will be subject to approval by the necessary government regulators and authorities.”

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