The Indonesian government will pay US$3.85 billion to acquire the majority stake in one of the world's largest gold and copper mines in Papua province, as it seeks more control of the country's vast natural resources.
Freeport-McMoRan announced that it has entered into a Heads of Agreement with the Indonesian state-owned enterprise PT Indonesia Asahan Aluminium (Inalum) and PT Freeport Indonesia's (PT-FI) joint venture partner Rio Tinto. Under the terms of the non-binding Heads of Agreement, Inalum will acquire for cash consideration of US$3.85 billion all of Rio Tinto's interests associated with its Joint Venture with PT-FI, and 100 per cent of FCX's interests in PT Indocopper Investama (PT-II), which owns 9.36 per cent of PT-FI.
The preliminary agreement came after more than a year of negotiations. Under the landmark deal, Freeport agreed to cede majority control of the Grasberg to Indonesian state mining company Inalum.
Inalum will contribute the Rio Tinto interests to PT-FI, which will expand PT-FI’s asset base, in exchange for a 40 per cent share ownership in PT-FI. Following completion of the transaction, Inalum's share ownership will be approximate 51 per cent of PT-FI, and FCX's ownership will be approximate 49 per cent.
Richard Adkerson, Vice Chairman of the Board, President and Chief Executive Officer, said that the agreement marked a significant milestone toward establishing a new long-term partnership with the Republic of Indonesia to provide long-term stability for PT Freeport Indonesia's operations.
“Through this transaction, the Government will achieve its ownership objectives in a manner that preserves the long-term value for FCX shareholders and the people of Indonesia through 2041”, said Mr Adkerson.
“We thank Rio Tinto for their support over our more than 20-year successful partnership and look forward to a mutually positive and beneficial partnership with Inalum that will continue to provide substantial benefits to the people of Papua; the Republic of Indonesia; and to our local employees, suppliers and contractors while generating attractive returns for our shareholders.”
At closing, Rio Tinto will receive $3.5 billion, and FCX will receive $350 million, in cash proceeds from Inalum. In addition, Rio Tinto will forego in favor of FCX an amount equivalent to Rio Tinto's share of Joint Venture cash flows received since 1 January 2018 through closing.
The transaction is expected to close during the second half of 2018.