By Anita Rachman and I Made Sentana
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 30, 2017).
JAKARTA, Indonesia -- U. S. mining company Freeport-McMoRan Inc.
will give up its majority stake in the giant Grasberg copper and
gold mine, in a significant step toward ending a long dispute with
Indonesia, dropping from 90.64% ownership to 49%.
The agreement, announced by Indonesian and Freeport officials on
Tuesday, will extend the mining company's permit until as long as
2041. It caps an important chapter in a struggle between Jakarta
and foreign mining companies in recent years, as the Southeast
Asian nation seeks a greater share of the wealth made from its vast
mineral resources.
The agreement requires Freeport to build a smelter by October
2022 -- consistent with a goal of President Joko Widodo's
government to increase domestic-processing capacity in Indonesia,
but seen by mining companies as an extra cost at the same time that
falling demand from China has pummeled commodity prices.
Freeport Chief Executive Richard Adkerson said the company will
invest as much as $20 billion, between now and 2041, to develop
what had been a largely open-air mine underground. Freeport has
invested $12 billion in developing Grasberg, located in Indonesia's
eastern province of Papua, since the 1970s. The company is
Indonesia's largest single taxpayer.
The divestment and the agreement to build the smelter, estimated
to cost $2 billion, amounted to a "major concession" from the
company, Mr. Adkerson said.
"For us, the big issue is having confidence that we can make
these investments and, having an agreement with the government,
that we will have time to recover those investments," Mr. Adkerson
said.
Freeport said in a statement released early Wednesday that the
divestment will be done in a way that will leave the company in
control of the mine's operations and management.
Freeport's current operating license expires in 2021 and
negotiations over its renewal had been going on for years. The
company had been reluctant to make new investments without an
agreement in place, and labor unrest had been increasing.
Tom Lembong, chairman of Indonesia Investment Coordinating
Board, called the agreement "a positive milestone" but said both
parties still have to talk about details, such as pricing and
fiscal terms.
Under the new agreement, Indonesia has agreed to extend
Freeport's license by 10 years to 2031, and if requirements are
being met, a further 10 years.
The value of the 41.64% stake that Freeport will now have to
sell remains to be determined. The government and its state-owned
enterprises are unlikely to have the financing to buy it in one
piece, so the divestment could be spread across many holders and
Freeport might retain the largest single holding, analysts
said.
Bill Sullivan, a Jakarta-based legal adviser to mining
companies, said foreign investors could see the agreement as a
positive development -- depending on how outstanding details are
resolved.
The mechanics, pricing and timing of the divestiture are
critical issues, Mr. Sullivan said, which, until resolved, make it
"impossible" to say whether the long-running dispute between
Freeport and Indonesia is over.
This agreement lifts a government threat to ban Freeport
exporting a form of unrefined copper, which was to have taken
effect in October.
Copper prices rose to their best level in nearly three years in
Asian trading Tuesday, largely because of falling Shanghai
inventories, with the benchmark three-month price recently trading
at $6,802.50 a metric ton on the London Metal Exchange.
Copper and other metals prices have been boosted recently by
optimism over China. But one of the biggest drivers for copper
prices has been snags in mine supplies, which might ease after the
agreement between Indonesia and Freeport.
The agreement will give a boost to President Widodo, known as
Jokowi, who had been determined to end what many in Indonesia see
as foreign companies benefiting from generous terms agreed to under
former dictator Suharto, who was overthrown in 1998.
"I think it will create an image that Jokowi is an excellent
negotiator, as he's able to get results that benefit the nation's
interest more than the investor's," said Wasisto Jati, a political
researcher at the Indonesian Institute of Sciences.
Freeport hasn't been alone in its troubles in Indonesia. Last
year, Newmont Mining Corp. and BHP Billiton sold off interests in
their Indonesian units to local companies and exited the country,
citing heavier regulation as a factor.
At the same time, mining revenue as a share of economic growth
has dropped since restrictions were put on exports in 2014.
Investment in future exploration has fallen dramatically, raising
concerns about future mining prospects in the absence of new
mineral finds.
Deden Sudrajat in Jakarta and Biman Mukherji in New Delhi
contributed to this article.
Write to I Made Sentana at i-made.sentana@wsj.com
(END) Dow Jones Newswires
August 30, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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