SMM September 28-Freeport McMoran Corporation (Freeport-McMoRan Inc.) The deal is a landmark signing of a binding agreement to hand over majority control of Grasberg, the world's second-largest copper mine, to an Indonesian state-owned company.
The agreement will allow Indonesia to issue a special mining license to Freeport to operate the mine by 2041. State-owned Inalum agreed to pay $3.85 billion to increase its stake to 51 per cent from the current 9 per cent. Rio Tinto will cash in its economic interests for $3.5 billion, while Freeport will receive a profit of $350 million.
Nevertheless, the production of the Grasberg copper mine will face major challenges. Production at the Glasberg copper mine is expected to fall sharply during this period as giant open-pit mining moves to underground operations. Freeport has long been looking forward to the end of open-pit mining operations and hopes that two new underground mines will return production to previous levels within a few years. But Freeport said on July 25th that technical challenges had slowed the development of Deep MLZ, while block mines at the Glasberg copper mine would not start production until 2019, meaning total production at the mine would "fall significantly" in 2019 and 2020.
However, Richard Adkson, chief executive of Freeport, said at the signing ceremony, "I believe we will create greater supply stability."
At a time of rising resource nationalism around the world, the company's future prospects have finally become clear. The agreement also shows that as Freeport becomes more confident in the substantial investment needed to maintain Grasberg copper production in the mountains of Papua province, the agreement heralds an increase in the stability of the long-term global copper supply. Due to the lack of mineral investment, the supply of copper mines in the global market is expected to tighten in the coming years. Bank of Montreal Capital Markets Limited (BMO Capital Markets Ltd.) Colin Hamilton, managing director of commodities, said, "Grasberg has been one of the biggest contributors to global copper supply over the past decade. There is no doubt that the determination of the transfer of shares is good for all parties.
Bloomberg (Bloomberg Intelligence) estimates that Grasberg's foreign exchange reserves are worth about $14 billion. The deal fulfilled a promise by Indonesian President Joko Widodo (Joko Widodo) to have more control over Indonesia's natural resources before the 2019 election.
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