Freeport-McMoRan Cedes Ownership Stake in Indonesia’s Mineral-Rich Grasberg for Long-Term Rights

Freeport-McMoRan (FCX) is giving up a majority ownership stake in the Grasberg minerals district of Indonesia, which has one of the world’s largest copper and gold deposits, in return for long-term operating rights.

The Phoenix, Arizona-based commodities giant will sell part of the ownership in its unit in the country to Indonesia interests, giving them a 51% stake. Freeport currently owns 90.6% and the government of Indonesia holds a 9.36% stake.

The divestment will be structured so that Freeport keeps control over operations and governance of its subsidiary, PT Freeport Indonesia, the company said, adding that the timing and process of the divestment is still being discussed with the government.

“Reaching this understanding on the structure of a mutual agreement is significant and positive for all stakeholders,” said Chief Executive Officer Richard C. Adkerson in a statement.

In February, the company said the Indonesian government passed regulations to require that PT-FI terminate its contract of work and convert to a special license to export concentrate production, a move the company said violated the contract, or COW. PT-FI said it was “unwilling to terminate its COW unless replaced by a mutually acceptable form of agreement providing fiscal and legal assurances to support its long-term investment plans in Papua, Indonesia.”

In Tuesday’s deal, the COW was changed to a special license that provides PT-FI with operating rights through 2041, Freeport said. The firm agreed to construct a new smelter in Indonesia within five years, while the government “will provide certainty of fiscal and legal terms during the term” of the special license.

The agreement is in line with Indonesia’s revised rules that require miners to divest stakes, build smelters and pay new taxes and royalties, said Vertical Research Partners analyst Mike Dudas in an e-mailed note.

“We believe the deal was in line with market expectations and that both parties made compromises in order to end this long standing dispute,” Dudas said. The analyst valued Grasberg at about $11 billion, and said Freeport could realize nearly $5 billion in a fair market divestiture.

By Bucky Rini