Indonesia Gets Closer to Taking Controlling Stake in Mine -- WSJ
July 13 2018 - 3:02AM
Dow Jones News
By Rhiannon Hoyle in Sydney and Amrith Ramkumar in New York
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 (July 13, 2018).
Global mining giants Freeport-McMoRan Inc. and Rio Tinto PLC
have agreed to hand over control of the world's second-biggest
copper mine to Indonesia, moving closer to resolving one of the
world's most prominent recent battles over resource wealth.
Thursday's agreement comes after years of tense negotiations and
follows moves by governments around the world, from the Democratic
Republic of Congo to Tanzania, to wrest control of mines and take a
bigger cut of profits. The deal also illustrates the dilemma facing
large mining companies, which often sink billions of dollars into
projects in far-flung places only to face unpredictable laws and
yearslong battles.
Freeport Chief Executive Richard Adkerson said the agreement
will finally form a partnership between the largest U.S. copper
miner and the Indonesian government.
"It's a new day for Freeport, and a new day for our working with
the government," Mr. Adkerson said on a call with analysts. "We'll
now be working hand in hand with the government as opposed to
having the sometimes difficult and contentious relationship that
we've had for so many years."
Under the terms of the deal, PT Indonesia Asahan Aluminum, or
Inalum, will pay $3.5 billion for an interest held by Rio Tinto in
the mine's share of production, mainly from the 2020s onward.
Inalum will then acquire an approximately 9% stake in the mine,
called Grasberg, from Freeport for $350 million. That will increase
Inalum's stake from around 10% to 51%. Freeport will end up with
49% and operate the mine.
The agreement is nonbinding, and Freeport and Rio Tinto said
they expect to finalize it in the second half of the year. Freeport
shares edged down 0.4% on Thursday, though they are up about 40% in
the past year as investors anticipated an agreement with Indonesia.
Rio Tinto shares edged down 0.1% in London.
Grasberg, the world's second-largest copper project, represents
about one-third of Phoenix-based Freeport's market value, leaving
the company with little wiggle room in negotiations to hand over
control, analysts said. Analysts estimate Thursday's deal values
Grasberg at about $10 billion to $13 billion. Other large miners
such as Newmont Mining Corp. and BHP Billiton Ltd. have in recent
years left Indonesia after the country imposed stricter
regulations.
One of Indonesia's largest employers and taxpayers, Freeport
says it has already invested about $14 billion in the mine and is
now set to spend billions more to move operations underground.
The agreement follows years of new rules for miners in Indonesia
going back to 2009 as resource nationalism intensified and Jakarta
sought to fatten its coffers and build the country's state-owned
firms into global competitors. Early last year, Indonesia
introduced rules requiring foreign miners to switch from long-term
contracts of work to a mining licensing system in which they said
their rights were more limited.
Resource nationalism has become a common way for countries,
emboldened by rising commodity prices, to renegotiate contracts and
legislation, especially during times when miners are flush.
Freeport's talks happened while copper prices hit a four-year high
in June, though they have fallen 16% since then as the U.S.-China
trade battle roils markets. Net profits of the world's top 40
mining companies more than doubled last year.
PricewaterhouseCoopers, which compiled the data, forecasts a
further 25% rise in 2018.
Also, Indonesian President Joko Widodo is up for re-election
next April.
"This is a leap forward," Mr. Widodo told reporters ahead of the
signing. "We expect we'll get bigger income from taxes, royalties,
dividends" so that mining commodities "can really be enjoyed by us
all. The national interest must take precedence."
The Democratic Republic of Congo drew up a new mining code this
year to take a bigger slice of profits, potentially hurting
companies like Glencore PLC. Miners have also been slapped with big
bills in Tanzania and Zambia amid tax and revenue sharing
disputes.
"We are making a lot of money, we are very profitable and
therefore everybody -- communities, governments -- wants to have a
bigger share of the cake," Rio Tinto Chief Executive Jean-Sébastien
Jacques said in an interview on Thursday before the deal was
announced.
--Ben Otto in Jakarta contributed to this article.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Amrith
Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
July 13, 2018 02:47 ET (06:47 GMT)
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