Freeport and Indonesia: The Tussle Continues




Freeport-McMoRan (FCX) operates the large Grasberg mine in Indonesia (EIDO). For the last few weeks, the mine has been in the news for shooting incidents linked to a rebel group. According to a Reuters report, “In the latest incident on Friday, a group of six unknown assailants shot at three police officers driving in a vehicle near the mine, though none of them were injured.”

The tussle

Freeport and the Indonesian government are involved in a discussion to extend Freeport’s mining rights in Indonesia beyond 2021. In August, Freeport announced a framework under which the company agreed to divest 51% of its stake in its Indonesia operations towards Indonesia. Rio Tinto (RIO) (TRQ) is Freeport’s partner at the Grasberg mine (GLEN-L). During its 3Q17 call, Freeport noted that “Indonesians will also be looking at Rio Tinto’s interest and expecting a divestment of that interest.”

Rio Tinto’s stake

According to Reuters, citing Fajar Harry Sampurno, Indonesia’s deputy minister for state-owned enterprises, “the interests of Rio Tinto, which is a joint-venture partner with Freeport in Grasberg, still needed to be factored into government plans to acquire a 41.64 percent stake in Freeport Indonesia, which would add to the 9.36 percent it already holds.” According to Sampurno, “This needs to be discussed again, whether (Rio’s interest) is converted into shares first, whether Inalum will acquire it first, or what.”

The two sides are still discussing the fair value of Freeport’s Indonesia operations. We should remember that Grasberg’s divestment valuation can impact the way markets value Freeport. Read The Answer to Freeport-McMoRan’s Valuation Could Lie with Indonesia for a broad overview of Freeport’s valuation.

You can also visit Market Realist’s Copper page for ongoing updates on the industry.

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