Freeport CEO Richard Adkerson told the media that he had agreed to relinquish a majority stake in subsidiary Freeport Indonesia to Jakarta in exchange for extending the Papua contract at the Grasberg mine (pictured) by 20 years until 2041.
No formal agreement has been reached.
During a previous visit to Jakarta in February, Adkerson threatened to take the government to arbitration where as this week he took a more conciliatory approach, appearing in a traditional Indonesian shirt.
“We have agreed to increase Indonesian owners from the current 9.36 per cent that the government owns to 51 per cent over time, in a way that compensates us at fair market value,” Adkerson told the joint press conference.
“Our willingness to divest 51 per cent and to build a smelter is a major concession and compromise from our part,” he said.
Adkerson said the agreement gave the US firm “confidence” to invest up to US$20 billion in developing operations at the copper and gold mine in Papua. The deal requires Freeport to build a smelter over the next five years to process copper concentrate within the archipelago.
Despite the presence of many of the world’s most abundant natural resources, post-independence governments in Jakarta have failed to take advantage of the vast natural riches.
Indonesia’s media presented the agreement as a success for President Joko Widodo’s aims to attract investment to the energy sector while increasing national ownership.
Under rules announced early this year, Jakarta raised taxes and royalties on mineral shipments and demanded that foreign extractors reduce the stakes in their Indonesian operations to below 50 per cent.
The government asked foreign firms to sign new permits that critics said offered less protection, sparking a row with Freeport, which stopped shipments from Grasberg.
Freeport was a major foreign investor under the regime of dictatorial former president Suharto, who ruled from 1967 to 1998. Grasberg’s environmentally ruinous development has been blamed for stirring demands for independence in largely untouched Papua.
No representation from the troubled, ethnically distinct province was at the press conference, thousands of kilometres away in the capital.
Freeport has a joint venture with Rio Tinto, the world’s second-biggest mining firm, to operate Grasberg.
Adkerson told the media that Rio Tinto’s approval would be required for the changes to take effect.
The Grasberg mine in Papua. Picture credit: YouTube