Freeport Indonesia & Government Stuck on Divestment Valuation
Indonesia's Energy and Mineral Resources Ministry stated that it will remain committed to the agreement that was made between Freeport Indonesia and the central government of Indonesia on 29 August 2017. However, although parent company Freeport-McMoran agreed to divest a majority stake in its Indonesian unit (Freeport Indonesia) in those negotiations, the exact divestment valuation is yet to be agreed upon.
Agreeing on the divestment valuation could be a difficult matter as the interests of both sides conflict. On Friday (06/10) Freeport-McMoran CEO Richard Adkerson met Indonesian Energy Minister Ignasius Jonan to discuss the valuation. However, both sides still seems poles apart.
In short, through the controversial 2009 New Mining Law, the Indonesian government made a lot of (protectionist) reforms in the mining sector. This implied that the government breached the long-standing mining contracts with existing miners. However, if Freeport Indonesia declined to adapt to the new regulations, then it would not be allowed to export its output, while the miner could also forget about extending its mining contract beyond 2021.
Therefore, Freeport Indonesia finally agreed to the following key points: (1) it will turn its contract from the old Contract of Work into the new Special Mining License (IUPK), (2) it will divest a stake up to - at least - 51 percent, and (3) it will build a new onshore smelter (processing facility).
Changing the contract to the IUPK also means that Freeport Indonesia has to pay higher taxes and royalties to the government. In return, Freeport Indonesia obtained the guarantee from the government that the miner can extend its contract to operate the Grasberg mine in Papua by ten years, twice, up to 2041.
While most matters are clear and agreed upon, the valuation of shares with regard to the divestment remains a problem: Freeport Indonesia wants to sell it at a high price, while the government wants to buy it at a low price. Initially, it was targeted that all negotiations would be over by 10 October 2017. However, both sides have indicated that it could require more time.
Shareholders PT Freeport Indonesia:
| Company/Institution | Stake |
| Freeport-McMoran | 81.28% |
| Indocopper Investama¹ | 9.36% |
| Government of Indonesia | 9.36% |
¹ Indocopper Investama is a subsidiary of Freeport-McMoran
Source: Freeport Indonesia
Operational Performance PT Freeport Indonesia:
| H1 2016 |
H1 2017 |
Growth | |
| Gold Production (in thousand ounce) |
336 | 580 | +72.6% |
| Gold Sales (in thousand ounce) |
346 | 604 | +74.6% |
| Copper Production (in million pounds) |
373 | 354 | -5.1% |
| Copper Sales (in million pounds) |
370 | 372 | +0.5% |
Source: Freeport Indonesia
Financial Performance PT Freeport Indonesia:
| H1 2016 |
H1 2017 |
Growth | |
| Revenue (in million US dollar) |
1,255 | 1,755 | +39.8% |
| Gross Profit (in million US dollar) |
163 | 536 | +228.8% |
Source: Freeport Indonesia
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