Copper and gold mining giant Freeport-McMoRan Inc. (NYSE: FCX) has taken the first step in transferring control of its massive Grasberg copper mine to the Indonesian government. The company has signed a nonbinding heads of agreement with Indonesia’s state-owned Inalum that ultimately will result in Inalum taking an ownership stake of 51% in world’s largest copper mine.
Under the terms of the agreement, Inalum will pay $3.85 billion to acquire 100% of Freeport’s 9.36% interest in a joint venture (known as PT-FI) between Rio Tinto Inc. (NYSE: RIO) and Freeport and all of Rio’s interests in the venture. Inalum will then contribute the Rio interests to PT-FI in exchange for a 40% ownership share in the venture for Freeport. At the end of the day, Inalum will own approximately 51% of PT-FI and Freeport will own 49%.
Freeport CEO Richard Adkerson commented:
This agreement marks 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.
When the deal closes, now expected in the second half of this year, Rio will receive $3.5 billion in cash and Freeport will receive $350 million. Following the close, Freeport expects future cash flows to be comparable to its existing share of future cash flows under the joint venture agreement. Freeport will continue to manage operations at Grasberg.
The outlook for Freeport investors does not change much, and their reaction to the deal demonstrates that. Shares traded up about 1% Thursday morning.
Freeport has operated the mine since the early 1990s, but its license expires in 2021 and the company has negotiated with the government for more than two years for an extension of the license, something it was not willing to do unless Indonesia acquired control.
Shares of Freeport traded up about 1.7% at $17.66 late Thursday morning. The stock’s 52-week range is $12.20 to $20.25.