Indonesia Still Studying Divestment Share Price Offered By Freeport

Workers along the tunnel underground pit mine PT Freeport Indonesia in Tembagapura, Papua, to optimized transitions Grasberg open pit mineral production will stop early 2017. (ANTARA/Puspa Perwitasari)
Workers walking in an underground tunnel belonging  to PT Freeport Indonesia in Tembagapura, Papua. (Antara Photo)

Jakarta, 13 Rabiul Akhir 1437/23 January 2016 (MINA) –  PT Freeport Indonesia (FI), one of the world’s largest copper and gold mines, has set the price for 10.64 percent stake it is to divest this year at US$1.7 billion (Rp23 trillion).

It has been considered overpriced by some Indonesian officials and experts.

The mining company is required to divest its 30 percent share by 2019 under the Indonesian Government Regulation No. 77 of 2014 on the Implementation of Mineral and Coal Enterprises, Antara News quoted by Mi’raj Islamic News Agency (MINA) as reporting.

In 2016, the subsidiary of the U.S. mining giant Freeport McMoRan Copper & Gold has to release 20 percent of its shares, and another 10 percent in 2019.

As the government has already obtained 9.36 percent shares, this year the divestment will be 10.64 percent.

State Enterprises (BUMN) Minister Rini Soemarno is one of those who commented that the price was too high especially as the prices of the commodities produced by the U.S. company are on the decline.

The price offered by Freeport did not reflect the real condition of the market of commodities produced by the U.S. company, Rini said.

“We are interested in the shares of Freeport, but we think the price is too expensive,” she said January 19.

The BUMN ministry is making evaluations by asking for inputs about the real value of Freeport, she said.

Energy and Mineral Resources (ESDM) Minister Sudirman Said, however, declined to comment on the offer, saying that an evaluating team will determine the fair share price of Freeport Indonesia.

“I would not comment on the price. There are experts for that,” the minister said on Jan. 23.

The government has asked for expert opinions of two state owned securities companies PT Danarakesa and PT Mandiri Sekuritas, he said.

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“Let us rely on them as they have accountable methods of evaluation,” he said, and added that the task is being carried out by the two valuers named by Minister Rini.

The final result of the valuation is expected to be ready in March this year.

The ministry is in fact more concerned with the procedure of the divestment, he stressed. The process of divestment has to be wrapped up in 60 days after agreement is reached on the share price, he said.

Freeport, however, has not given dividends to its shareholders in the past three years on shrinking profit, the minister said.

Whether the dividends would be paid or not depended on the decision in the shareholders meeting, he said.

Acquisition of the 10.64 percent stake would give the government significant voting power of 20 percent, he said.

The evaluation was required to determine the reasonableness of the divestment value, Director of Mineral Business Development of the ESDM Ministry Muhammad Hidayat said recently.

The team will consist of representatives of the Ministry of Energy and Mineral Resources, the Ministry of Finance, the Ministry of Coordinating for Maritime, the Financial and Development Supervisory Agency (BPKP) and the Attorney General, Hidayat continued.

“There must be a price agreement. If it is found overpriced, we will call the company and ask for an explanation,” he said, and added that Freeport itself has not explained the basic value assumption.

Likeliest option

In the meantime, Minister for National Development Planning/Head of the National Development Planning Board (Bappenas) Sofyan Djalil said the government has not allocated funds to buy the shares of the mining company located in Papua Province this year.

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“The government has no money for it. Even if we have, we prefer to use the money to finance infrastructure development,” Sofyan said earlier.

Currently the likeliest option is for state companies (BUMN) to buy the shares, he said.

The BUMNs interested in the stake and should start reevaluating the offer and study the financial risks as the prices of gold and copper are now on the decline, he remarked.

Vice President Jusuf Kalla also confirmed that the government is still studying the offer.

“Certainly it needs studying. It is not a small amount,” Kalla said.

The government is studying the real value of the Freeport share, and added that there are quite a few companies eager to buy the shares, he said.

Four state mining companies – PT Aneka Tambang Tbk, PT Bukit Asam Tbk, PT Timah Tbk and PT Indonesia Asahan Aluminium (Inalum) are ready to jointly acquire a stake in Freeport Indonesia, Rini said earlier.

It was important for the four state companies to create synergy to form a world class mining company, she said.

PT Freeport Indonesia is in the business of exploration, mining, processing and marketing of minerals, such as copper, gold, and silver worldwide. It has been operating the Grasberg mine in Papua, Indonesias eastern most province, since 1967.

Freeport McMoRans copper-concentrate exports from Indonesia were expected to reach 756,300 tons with an estimated value of $1.56 billion by the end of 2015.

Freeport scandal

Late last year, an audio recording of the then House Speaker Setya Novanto allegedly demanding shares in PT Freeport Indonesia (FI) shook Indonesian politics.

The Freeport scandal, described by Vice President M. Jusuf Kalla as the biggest ever in the nations history, forced Novanto to resign on December 16, 2015, after the House Ethics Tribunal named Novanto guilty in that case.

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Novanto reportedly mentioned the names of President Joko Widodo (Jokowi) and Vice President M Jusuf Kalla as would-be recipients of the companys stake, in his talks with the then PT FI President Director Maroef Sjamsoeddin who had secretly recorded his conversations with Novanto.

Nearly a month after Novantos resignation, Maroef Sjamsuddin on January 18, 2016 announced his stepping down from his position in PT FI.

In a letter to PT FI employees, he explained that his contract as president director of PT Freeport Indonesia, that was valid for a year, has expired.

He had rejected an offer by the board of Freeport McMoRan to extend his contract, he said. Freeport McMoRan is the principal company of PT Freeport Indonesia.

Sjamsuddins resignation comes at a time when the issue of the continuation of Freeports operations in Papua province is still in question.

Freeport has applied for the extension of its contract from 2021 to 2041, but based on Law Number 4 of 2014 on mineral and coal mining, the application for extension could only be considered two years before the expiration of the contract, which is valid till 2021.

Last month, Freeport-McMoRan co-founder James Moffett also announced that that he was stepping down as executive chairman.

Commenting on the resignation of Maroef Sjamsuddin, Minister Sudirman Said expressed his hope that change in Freeport Indonesias president director not to cause a drag on the process of share divestment and construction of its smelter.

“We want to remind the management of PT Freeport Indonesia of its commitment,” the minister said recently. (T/P010/R07)

Mi’raj Islamic News Agency (MINA)