Freeport-McMoRan continues discussion of sale of Grasberg Mine

April 26, 2018

Freeport-McMoran said it is continuing to work on a deal that would turn over 51 percent of the Grasberg Mine in Indonesia to local ownership.
Currently, Freeport-McMoRan owns a 91 percent stake of the massive copper mine, but Indonesia has set an objective of 51 percent local ownership as part of a broader push to give Indonesians greater control of the country’s natural resources.

To meet this objective, Freeport has been in talks with Inalum, a state-backed company, and its joint venture partner Rio Tinto on a potential deal that would pave the way for a multi-billion dollar underground expansion of the Grasberg mine.

However, the Financial Times reported that the company offered few new details, disappointing analysts who said the talks were likely to drag on. Freeport had hoped to reach a deal by the end of June when a temporary mining license is due to expire.

Shares in Freeport fell 9.6 per cent to $17.

“The parties continue to negotiate documentation on a comprehensive agreement for Grasberg’s extended operations and to reach agreement on timing, process and governance matters relating to the divestment”, Freeport said after reporting first quarter results. “The parties have a mutual objective of completing negotiations and the required documentation as soon as possible.”

In recent months the outlines of a deal have emerged. It rests on Inalum buying Rio Tinto’s interest in Grasberg: the Anglo-Australian mining company is entitled to 40 percent of production above agreed levels until 2023 and 40 percent of all output thereafter.

Through this structure, Jakarta would increase its interest in the mine to 51 percent, while Freeport would retain a shareholding big enough to justify a multibillion-dollar underground expansion project.

For Rio Tinto, selling down its interest in Grasberg would allow the company to exit a challenging mining jurisdiction and focus on its core assets. It would also open Rio’s share register to investors who cannot invest in the company because of environmental concerns related to some of the processes used at Grasberg. But the Anglo-Australian miner is likely to want a full price for its interest.

“We continue to engage in negotiations with the Indonesian government to restore long-term stability for our Grasberg operations and look forward to reaching a mutually positive resolution,” said Adkerson in a statement.

His comments came after Freeport reported a near 70 per cent increase in net income to $692 million for the first three months of the year, boosted by higher copper prices.

However, the results were below expectations with Freeport lowering production forecasts and raising cost guidance for 2018.

Freeport said it expected to sell 3.8 billion pounds of copper this year, down from previous guidance of 3.9 billion pounds because of maintenance activities at Grasberg. Costs are expected to average $1.01 per pound for 2018.
 

 

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