Freeport-McMoRan announced that it will yield control of the Grasberg Mine to the government of Indonesia by cutting its ownership from 90.64 percent to 49 percent.
The agreement ends a long-running dispute between the company and the government.
The agreement, announced by Indonesian Energy Minister Ignasius Jonan and Freeport Chief Executive Richard Adkerson during a press conference on Aug. 28, will also require Freeport to build smelters, a goal of Indonesia to increase value-added wealth from its mineral resources.
In exchange, the Indonesian government agreed to extend Freeport’s permit to export copper from the mine. That gives the mining giant a measure of certainty as it makes plans to expand the mine and shift much of the work underground, the New York Times reported.
The agreement gives Freeport “assurances on fiscal and legal matters that gives us the confidence to make these $20 billion dollars of investments,” Richard Adkerson, Freeport’s chief executive, said during the news conference.
Alluding to the rising price of copper, which has reached two-year highs on rebounding Chinese demand, he added, “those investments will have major returns.”
In 2015, Grasberg’s output of gold and copper was worth $3.1 billion Local politicians and activists have complained that Freeport pays little in taxes; the company has said it pays back more than half its profit from the mine in taxes, fees, royalties and other payments. Freeport-McMoRan has invested $12 billion in developing the mine.
Late last year, Indonesia unveiled legislation that required foreign mining companies to switch to a new licensing agreement that required them to divest 51 percent of their stakes in Indonesian mines. Freeport delayed the switch, prompting the Indonesian government to withdraw Freeport’s export permit for copper in January, and resulting in a partial shutdown of the Grasberg mine for a few months. In April, the two sides signed a temporary agreement allowing Freeport to export unrefined copper.
Freeport and Indonesia have much ground to cover before a deal is sealed, however.
Freeport valued Grasberg at around $16 billion, suggesting Indonesia would have to plow a significant amount of money into the operation to increase its stake from its current 9 percent. The Indonesian government has previously argued that it should have to pay significantly less than Freeport’s proposed sum. The timing of a deal has also been left unclear.
“We are pleased to announce an agreed framework to support our ongoing operations and investment program in Papua. Reaching this understanding on the structure of a mutual agreement is significant and positive for all stakeholders. Important work remains on documenting this agreement and we are committed to completing the documentation as soon as possible during 2017,” Adkerson said in a statement.