Freeport expected to complete divestment this month

The US-based gold and copper mining company PT Freeport Indonesia (FI) is expected to divest 51 percent of its shares this month based on the directives of President Joko Widodo.

The government has assigned state-owned mining holding firm PT Indonesia Asahan Aluminium (Inalum) to hold negotiations with PT FI on the divestment of its shares.

Inalum President Director Budi Gunadi Sadikin confirmed that his company is now closer to completing negotiations on the divestment deals.

He stated that the divestment of PT FI is in the final stage.

“Yes, we are handling the divestment process that has reached the final stage,” Sadikin had informed reporters in Bogor, West Java, on Saturday (Apr 14).

Sadikin did not elaborate on how the divestment process had reached the final stage but only gave an implicit answer. Sadikin did not explain the next steps to be taken nor the process of the final negotiations.

Earlier, Minister of Energy and Mineral Resources Ignasius Jonan noted that no report was received from PT Inalum on results of the negotiations with PT FI over the divestment of 51 percent shares.

“Nothing yet,” Jonan replied in Jakarta after attending a mining forum on Wednesday (Apr 11) when asked about the results of a report from PT Inalum during a negotiation with PT FI.

No further explanation has been received from the minister over the latest results of PT FI`s divestment process with the government.

Jonan stated that the question should be posed to the Ministry of State-owned Enterprises, as the process has been taken over by an oil and gas holding firm.

He stated that the 51 percent divestment of PT FI is targeted to be completed by April 2018, based on President Widodo`s directive.

“The president`s directive is that, if possible, PT FI`s divestment should be completed before the end of April,” Jonan remarked.

PT FI has agreed to release 51 percent of its shares to the Government of Indonesia. The divestment of 51 percent of PT FI`s shares is carried out under Government Regulation No. 1 of 2017 concerning the Fourth Amendment of Government Regulation Number 23 of 2010 on the Implementation of Mineral and Coal Mining Business Activities.

The release of 51 percent shares is a symbol of the country`s sovereignty, requested by Indonesian President Widodo, to be completed before the end of April 2018.

Regarding the mechanism of share divestment purchase, Jonan explained that the government will buy shares from Rio Tinto`s participating interest and the rest from PT Freeport Mc Moran shares in PT Indocopper.

“We will buy at a reasonable price until the government`s share reaches 51 percent in line with the directive of President Joko Widodo. We will take over 40 percent of the participating interest of Rio Tinto to be converted into shares, and the rest will be taken from shares owned by PT Freeport Mc Moran in PT Indocopper Investama,” Jonan pointed out.

Jonan also explained the reason behind the government not waiting until PT FI completes its contract period at the end of 2021.

“If we wait until 2021 to take over, we must pay a minimum book value of all Freeport investments that have been done there, not the value of the mine” Jonan reiterated.

It was earlier reported that PT FI had agreed to divest 51 percent of its shares to the Indonesian government as one of the conditions it had to meet for extending its work permit to operate in Indonesia.

PT FI will end its contract in 2021 and is seeking to extend it until 2041. However, based on the regulation, the contract can only be extended for another 10-year period or reviewed in every decade.

However, the contract can be made for a period of 20 years until 2041 if PT FI divests 51 percent of its shares.

“Virtually, there is no problem if PT FI wants to renew its contract until 2041 on the condition that it is prepared to divest 51 percent of its stake to the Indonesian government,” Coordinating Minister for Maritime Affairs Luhut Pandjaitan had noted on August 14, 2017.

The Indonesian government signed its first work contract with Freeport McMoran Inc. on April 7, 1967, with exclusive mining rights on a 100 square-kilometer tract in Ertsberg, Papua. The work contract was extended in 1991 and will expire in 2021.

Freeport is now required to divest 51 percent of its shares to the Indonesian government. So far, the Indonesian government only has 9.36 percent of Freeport`s shares.

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