Indonesia gains control of Grasberg mine

A 2015 file photo of the Grasberg copper and gold mine complex. The US$3.85 billion (S$5.3 billion) deal will allow Indonesia to own a 51 per cent stake of the Grasberg mine, the world's second-largest copper mine, which also produces gold. It curren
A 2015 file photo of the Grasberg copper and gold mine complex. The US$3.85 billion (S$5.3 billion) deal will allow Indonesia to own a 51 per cent stake of the Grasberg mine, the world's second-largest copper mine, which also produces gold. It currently owns about 10 per cent of the mine.PHOTO: REUTERS

The Indonesian government yesterday signed a final and binding agreement to acquire a majority stake in one of the world's largest gold and copper mines in Papua province.

The US$3.85 billion (S$5.3 billion) deal will allow Indonesia to own a 51 per cent stake of the Grasberg mine, the world's second-largest copper mine, which also produces gold. It currently owns about 10 per cent of the mine.

The deal will most likely be financed by syndicated bank loans, but there is also a possibility of a bond sale, the government said.

The deal came after more than a year of negotiations with US-based Freeport-McMoRan and its partner Rio Tinto, and after a preliminary agreement in July.

The deal was signed by Indonesia's state-owned mining holding company Inalum and Freeport-McMoRan. The signing was witnessed by Energy Minister Ignasius Jonan, Finance Minister Sri Mulyani Indrawati and State-Owned Enterprise Minister Rini Soemarno.

Inalum will make the payment by November, chief executive officer Budi Gunadi Sadikin told reporters. He said the state-owned company has up to six months to settle the payment. "Raising funds through a bond sale is still possible, depending on the market condition. If we do bond, we do it in Singapore," he said.

Freeport-McMoRan chief executive officer Richard Adkerson said: "Freeport Indonesia (which runs the mine) will be owned 51 per cent by Inalum and 49 per cent by McMoRan. By that point, Rio Tinto will not have any interest."

The deal, a record corporate acquisition in Indonesia, could fan nationalist sentiments among voters ahead of the legislative and presidential elections on April 17 next year. President Joko Widodo is seeking a second five-year term.

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

It started developing the Grasberg mine in the early 1970s. Given the lack of infrastructure development, few industries 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.

The Freeport deal came after Canada's Barrick Gold agreed on Monday to merge with Randgold Resources, whose shares are traded on the London stock exchange, creating the world's biggest gold miner.

A version of this article appeared in the print edition of The Straits Times on September 28, 2018, with the headline 'Indonesia gains control of Grasberg mine'. Print Edition | Subscribe