US mining giant Freeport-McMoRan said Tuesday it had agreed to divest a 51 percent stake in its Indonesian unit, bringing an end to a fierce standoff with the country’s government over mining rights.
The agreement will allow the firm to continue operating its vast copper and gold mine in Indonesia’s Papua province until 2041, but require it to build a smelter and give the government a majority stake in the operation.
“We have agreed to increase Indonesian owners from the current 9.36 percent that the government owns to 51 percent over time, in a way that compensates us at fair market value,” Freeport chief executive Richard Adkerson said at a joint press conference in Jakarta.
Despite sitting atop some of the world’s most abundant natural resources, successive governments have failed to take advantage of Indonesia’s vast riches.
Economic nationalists have recently pushed for stricter conditions on foreign firms in a bid to reap greater profits from the industry.
Under new rules announced early this year, Jakarta raised taxes and royalties on mineral shipments and demanded that foreign miners reduce the stakes in their Indonesian operations to less than half.
The government asked firms to sign new permits that critics said offered less protection — triggering a standoff with Freeport, which stopped shipments from its huge Grasberg mine in Indonesia’s east.
Indonesian Energy Minister Ignasius Jonan said negotiations were not easy, but had concluded well.
“This is a mandate by the President and Freeport is willing to accept that the divestment by Freeport will be 51 percent,” he said.
“Currently a detailed negotiation is underway and has been attached to the special mining license.”
Freeport’s current licence to mine Grasberg — one of the world’s biggest gold and copper mines — ends in 2021, but under the new terms it will be allowed to apply for two 10-year permit extensions.
Finance Minister Sri Mulyani said the new deal was a boost for government finances.
“One thing for sure is the state revenue from Freeport Indonesia’s operation will be bigger than what we received using the contract of work,” she said, referring to the existing contract.
Adkerson said although the deal provided certainty in fiscal and legal matters, the miner had compromised.
“Our willingness to divest 51 percent and to build a smelter is a major concession and compromise from our part,” he said.
Freeport has a joint venture with Rio Tinto, the world’s second-biggest miner, to operate the Grasberg mine.
Adkerson said Rio Tinto’s approval would be required for the changes to take effect.
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