Freeport McMoRan (NYSE:FCX) and Rio Tinto (LON:RIO) that give Indonesia a majority stake in their Grasberg copper mine, the world鈥檚 second-largest, and which would be transferred to the state-owned mining company PT Indonesia Asahan Aluminium (Inalum).
The 鈥渄efinitive鈥� and 鈥渂inding鈥� agreements end a聽聽over the mine, centred on bringing Indonesian ownership up to 51%, a main requisite set by the government to allow Freeport-McMoRan, operator of Grasberg, to keep doing so.
It could also bring closure to聽聽between the Phoenix, Arizona-based copper miner and the country鈥檚 government, which last year curbed output at the mine,聽.
Agreements end a long-drawn-out, three-way dispute over the mine, which has been centred on bringing Indonesia鈥檚 ownership of Grasberg up to 51%.
The transfer of majority shares to Inalum will happen once the miner makes a payment of $3.9 billion to Freeport and Rio Tinto, Energy and Mineral Resources Minister Ignasius Jonan
As announced , once Inalum becomes Grasberg鈥檚 majority stakeholder, the government will issue a special mining license extension to Freeport allowing ore extraction until 2041.
The permit, known as an IUPK, is the 鈥済overnment鈥檚 commitment to maintaining the investment climate so as to provide certainty and security to foreign investors to invest in Indonesia,鈥澛爉inister Jonan noted.
The authority added that Freeport鈥檚 local unit will have to build a copper smelter with a capacity of 2聽to 2.6 million tons per year, which should be completed in less than 5 years.
PT聽Freeport Indonesia is already drafting a roadmap to manage all environment-related issues surrounding the facility, Minister for Environment and Forest Siti Nurbaya .
Government鈥檚 victory
Today鈥檚 deal is considered a victory for President Joko Widodo, who faces re-election in 2019 and who has insisted that mining companies must divest majority stakes in order to continue operating in the country.
Grasberg, the world鈥檚 second-largest copper聽mine and聽fourth largest gold聽operation, is transitioning to an underground operation, set to reach full capacity by 2022, when it will produce 160,000 tonnes per day of ore.
The additional Deep Mill Level Zone block cave mine, currently under construction, is projected to contribute an additional 80,000 tonnes per day of ore once at full capacity, expected in 2021.
Currently, Grasberg鈥檚 reserves are estimated to be worth about $14 billion. Last year it accounted for 47% of Freeport鈥檚聽operating income, according Bloomberg Intelligence.