Indonesia signs landmark deal to gain control of mine

Freeport's Grasberg copper and gold mine complex near Timika, in the eastern region of Papua. The Indonesian government will pay US$3.85 billion (S$5.23 billion) to acquire the majority stake in the Grasberg mine.
Freeport's Grasberg copper and gold mine complex near Timika, in the eastern region of Papua. The Indonesian government will pay US$3.85 billion (S$5.23 billion) to acquire the majority stake in the Grasberg mine.PHOTO: REUTERS

The Indonesian government will pay US$3.85 billion (S$5.23 billion) to acquire the majority stake in one of the world's largest gold and copper mines, in Papua province, as it seeks more control of the country's vast natural resources.

The move would be a political boon to President Joko Widodo ahead of the general election next April.

The preliminary agreement came after more than a year of negotiations with US-based Freeport-McMoRan and its partner Rio Tinto. Under the landmark deal, Freeport agrees to cede majority control of the Grasberg mine - the world's second-largest copper mine which also produces gold - to Indonesian state mining company Inalum.

Indonesia will hold a 51 per cent stake, up from just under 10 per cent, pending both parties meeting each other's conditions. Freeport will hold the remaining 49 per cent stake. It will also continue to operate the huge mining complex in the jungles of Papua province.

Indonesia would make the payment by year-end, according to a government statement.

"State companies have high commitment and dedication to increase the welfare of the Papuan people. This is in line with the role of state companies, which is to be the agent of development," State-owned Enterprise Minister Rini Soemarno said yesterday.

Freeport chief executive Richard Adkerson called the deal a positive step and said the company is committed to making "this public-private partnership a success story".

The deal could fan nationalist sentiments among voters ahead of the legislative and presidential elections on April 17 next year. Mr Joko is expected to seek a second five-year term.

Freeport entered Indonesia in 1960s, around the time of a change in leadership from first president Sukarno to Suharto.

Freeport started developing the Grasberg mine in the early 1970s. Given the lack of infrastructure development, little industry and a cash-strapped government then, the contract with Freeport helped to improve the country's economy.

But politicians and observers have increasingly been questioning the contract terms, seen as more favourable to the company than to Indonesia.

A version of this article appeared in the print edition of The Straits Times on July 13, 2018, with the headline 'Indonesia signs landmark deal to gain control of mine'. Print Edition | Subscribe