Indonesia plans to acquire Rio Tinto interest in Freeport Indonesia mine

By Wilda Asmarini

JAKARTA (Reuters) - Indonesia plans to acquire Rio Tinto's 40 percent participating interest in the giant Grasberg copper mine operated by the local unit of Freeport-McMoRan Inc, the mining minister said.

Under a joint venture formed in 1996, Rio has a 40 percent interest in Freeport's Grasberg contract, which entitles them to 40 percent of production above specific levels until 2021 and 40 percent of all production after 2022.

Under a framework agreement announced in August, Phoenix, Arizona-based Freeport said it would divest 51 percent of PT Freeport Indonesia to the Indonesian government, but the fate of Rio's interest in the mine has been unclear.

Indonesia plans in 2018 to complete the acquisition of Rio's interest in the mine, as well as the purchase of a 51 percent stake in Freeport Indonesia by the Ministry of State-Owned Enterprises (SOE) and other government units, Energy and Mineral Resources Minister Ignasius Jonan said on Tuesday.

"To achieve the 51 percent, there's Rio Tinto's 40 percent participating interest that will be acquired by the State-Owned Enterprise Ministry, which has been appointed by the government, along with regional-owned enterprises and (Papuan) tribes linked to the operations of PT Freeport Indonesia," said Jonan.

"Negotiations are underway and discussion of legal drafting have begun," Jonan added, noting that the talks were being conducted by the companies along with the Ministry of Finance and SOE ministry.

A 9.36 percent stake in Freeport Indonesia held by PT Indocopper Investama, which is wholly owned by Freeport McMoRan, will also be bought by the government, he said.

The government expects a written agreement on the matter, along with new fiscal terms in a special mining permit, in the near-term, he said.

SECOND-BIGGEST COPPER MINE

An official at the SOE ministry said in late November that there was "no clear structure yet" for a deal.

A Melbourne-based spokesman for Rio declined to comment. A spokesman for Freeport Indonesia also declined to comment. Budi Gunadi Sadikin, chief executive of PT Inalum, the state owned mining holding company tipped to acquire the stakes, declined to comment.

A review of two decades of annual reports shows Rio's capital expenditures on Grasberg, the world's second-biggest copper mine, reached nearly $2 billion, while its net profit add up to just $1.7 billion.

Outside of Indonesia, Rio has been expanding its exposure to copper mining.

It is spending around $1 billion a year on an underground expansion to its Oyu Tolgoi mine in Mongolia and also owns the Bingham Canyon copper mine in the United States.

In Chile, Rio is a 30 percent owner of the Escondida mine, the world's largest copper mine. BHP is the majority owner.

Rio Tinto is also a partner with BHP in the proposed Resolution copper mine in Arizona, which if developed has the potential to be the biggest source of copper in the U.S.

Benchmark copper prices on the London Metal Exchange dropped 2.2 percent on Tuesday to $6,674.50 per tonne. On Oct. 16, prices surged past the $7,000 per tonne mark to their highest in three years.

(Reporting by Wilda Asmarini; Additional reporting by Cindy Silviana in JAKARTA and Jim Regan in SYDNEY; Writing by Fergus Jensen; Editing by Tom Hogue and Christian Schmollinger)