Jakarta: US mining giant Freeport McMoRan has signalled it believes a breakthrough agreement allowing it to continue operating a massive gold and copper mine in Indonesia will win the approval of Rio Tinto.
Indonesian Energy and Minister Resources Minister Ignasius Jonan said on Tuesday that after “tough negotiations” Freeport had agreed to give up its majority stake in the Grasberg mine to Indonesia.
The agreement will require Freeport to cut its ownership of the mine from 90.64 per cent to 49 per cent, provide more state revenue, adopt a special licence and build a second smelter by 2022.
Freeport’s chief executive Richard Adkerson said the mining company would need to obtain approval for any changes from Rio Tinto, which has been a partner in the operations in Papua, a restive eastern province of Indonesia, since the mid-1990s.
“We have been working with Rio Tinto on a co-operative basis as Freeport has represented these operations with the government,” Mr Adkerson said in Jakarta.
He said his own view was that if Freeport viewed the changes as appropriate and beneficial it would be able to obtain Rio Tinto’s agreement.
Fairfax Media sought comment from Rio Tinto.
Grasberg is the world’s second-largest copper mine.
Rio Tinto is entitled to a 40 per cent share of output from Grasberg above specific levels until 2021 and 40 per cent of all production after 2021.
However the company indicated in April it might not take ownership of 40 per cent of copper production after 2021.
“Rio Tinto’s participation beyond 2021 is likely to be affected due to the application of force majeure provisions in the joint venture agreement between Rio Tinto and Freeport McMoRan,” it said at the time.
The preceding month Rio Tinto Group chief Jean-Sebastien Jacques had flagged it was considering the future of its stake in the Grasberg mine.
The mine was at the centre of violent protests in August after Freeport furloughed thousands of workers earlier this year in response to export restrictions related to the lengthy permit dispute with Indonesia.
Indonesia eventually granted a six-month permit allowing Freeport to temporarily resume copper concentrate exports, but they were at risk of being again halted when the temporary permit expired in October.
The timing and price of the divestment are yet to be resolved, with Mr Adkerson emphasising that the agreement to divest the 51 per cent stake and build a second smelter were “major” concessions.
Mr Jonan said Freeport would be able to immediately apply for a 10-year permit extension.
Its current 30-year contract at Grasberg is due to expire in four years.
“We agreed that the first extension is for 10 years and and the next one will be for 10 years,” Mr Jonan said.
“Legally they will not be automatic.”
Freeport is one of Indonesia’s largest taxpayers. It had been seeking an agreement that would run until 2041 and provide certainty for a multibillion-dollar underground expansion.
Mr Jonan said the government and Freeport would work together to immediately finalise the documentation of the agreed structure and Freeport would get the necessary corporate approval.
“The result of the negotiation is in line with President Joko Widodo’s instruction to put forward the national interest, the interest of the Papuan people, state sovereignty in managing natural resources and providing a conducive investment climate,” he said.
With Karuni Rompies