Indonesia Wants Control of Freeport's Grasberg Within Two Years

  • State holding company ready to take 51% stake in local unit
  • Grasberg labor union threatens rally, strike amid dispute

The dispute engulfing the world’s second-biggest copper mine deepened as Indonesia’s government said it planned to take a majority stake in the local unit of owner Freeport-McMoRan Inc. within two years while workers at the pit threatened to go on strike.

The state enterprises ministry has cleared a government-run company to buy a majority stake in PT Freeport Indonesia, the local unit that runs the massive Grasberg mine in Papua province, according to Fajar Harry Sampurno, the deputy minister for mining, media and strategic industries. Freeport-McMoran would have to divest its share to a state-owned entity under a new contract that the Phoenix-based miner is yet to sign.

“We’re ready,” Sampurno said at a press conference in Jakarta on Wednesday. A local aluminum producer, PT Indonesia Asahan Aluminium, will be turned into a holding company to purchase the stake, he said. “Once the holding company is formed, they will immediately work on it.”

The preparations for state-ownership suggest Jakarta is refusing to budge in a dispute that’s curtailed mining at Grasberg and prompted Freeport to lay off thousands of workers. Under new rules announced in January, the government said companies that want to export semi-processed metals including copper concentrate must convert their contract of work to a special mining license, build smelters and add local investors. Freeport has refused to do so until it gets guarantees protecting its investment.

Sell Shares

The rules stipulate foreign miners must begin selling shares to local entities five years after starting production and must reach 51 percent local ownership by the 10th year. Freeport must immediately divest its stake after converting its contract, because the firm has been mining in the country for more than a decade, Deputy Energy and Mineral Resources Minister Arcandra Tahar said in January. At present, Indonesia holds 9.36 percent of Freeport Indonesia.

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The government last month issued a special mining license, or IUPK, to Freeport, but the company vowed to hold out for investment safeguards that provide the same level of fiscal and legal certainty as its current contract of work. The miner served a notice to Indonesia’s energy ministry in February over the areas of dispute, and said it has the right to begin arbitration if they aren’t settled within 120 days.

Company Talks

Freeport Indonesia continues talks with the Indonesian government, spokesman Riza Pratama said by text message on Wednesday. A senior government official said in early March that the administration wanted to resolve the standoff in two weeks.

Last month, Freeport Chief Executive Officer Richard Adkerson outlined the company’s concerns, decrying both the process for converting the contract to a license as well as the divestment requirement. “These forms of regulations are in effect a form of expropriation of our assets, and we are resisting it aggressively,” he said at a conference.

Indonesia Asahan Aluminium, known as Inalum, will be turned into a mining holding company to purchase the stake in Freeport’s unit, according to a presentation by the state enterprises ministry on Wednesday. Local miners PT Aneka Tambang, PT Bukit Asam and PT Timah will become units of Inalum.

Aneka Tambang, the state-owned nickel miner known as Antam, is ready to participate in the Freeport purchase, according to President Director Tedy Badrujaman.

“Antam, because of its expertise, will probably be assigned to monitor mining operations at Grasberg, especially during the transition period, if the stake purchase went through,” Badrujaman told reporters in Jakarta on Wednesday.

Union Demands

The Grasberg labor union is adding pressure on both sides to resolve the dispute and resume mining that’s been reduced to about 10 percent of capacity and resulted in about 2,100 workers to be laid off.

Workers will protest in seven days if the government and Freeport fail to respond positively to demands outlined in a March 21 notice, Tri Puspital, the industrial relations officer at Freeport Indonesia’s labor union, said by phone.

The union wants the government to form a tripartite body to protect workers’ rights and find a resolution that ensures future operations at the mine, he said. Freeport should stop laying off workers, according to Puspital.

“Workers will protest with a rally, and won’t rule out the possibility of a strike if there’s still no response,” he said.

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