Indonesia and Freeport-McMoRan have reached a deal which will enable Freeport to keep operating its giant Grasberg copper mine in Indonesia’s Papua province. The deal was reached this week after the US company agreed to sell a majority stake in the operation to Indonesia.
Freeport has been in talks with Indonesia since late 2009 to work out how to shift to a new permit for Grasberg, the world’s second-biggest copper mine, as mandated in a mining law passed that year.
The company said on Tuesday it had made a “major concession and compromise” in selling a 51% stake in PT Freeport Indonesia (PT-FI), its Indonesian subsidiary.
In a statement Freeport said the parties have reached an understanding on a framework to support PT-FI’s long-term investment plans in Papua. This framework, which will require definitive documentation and Freeport Board and partner approvals, includes the following key terms:
• PT-FI will convert its Contract of Work to a special licence (IUPK), which will provide PT-FI with long-term operating rights through 2041.
• The government will provide certainty of fiscal and legal terms during the term of the IUPK.
• PT-FI will commit to construct a new smelter in Indonesia within five years.
• Freeport will agree to divest its ownership in PT-FI at fair market value so that Indonesia interests own 51% of PT-FI’s shares. The timing and process of divestment is being discussed with the government. The divestment will be structured so that Freeport will retain control over operations and governance of PT-FI.
The company has also agreed to build a second smelter in Indonesia and plans to invest between $17 billion and $20 billion in Grasberg through 2031.
Freeport’s president and CEO Richard C Adkerson said, “We are pleased to announce an agreed framework to support our ongoing operations and investment program in Papua.
“Reaching this understanding on the structure of a mutual agreement is significant and positive for all stakeholders. Important work remains on documenting this agreement and we are committed to completing the documentation as soon as possible during 2017.”