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Indonesia looks to buy Rio Tinto's interest in Grasberg

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Indonesia looks to buy Rio Tinto's interest in Grasberg

The Indonesian government is planning to acquire Rio Tinto's 40% participating stake in the Freeport-McMoRan Inc.-operated Grasberg copper-gold mine, Reuters reported Dec. 5, citing Energy and Mineral Resources Minister Ignasius Jonan.

This will be in addition to Freeport's 51% stake in PT Freeport Indonesia that the government is acquiring under a framework agreement between the parties that was signed in August.

Rio Tinto is entitled to 40% of Grasberg's copper production above specific levels until 2021 and 40% of all production after 2022, according to the report.

"To achieve the 51%, there's Rio Tinto's 40% participating interest that will be acquired by the State-Owned Enterprise Ministry, which has been appointed by the government, along with regional-owned enterprises and (Papuan) tribes linked to the operations of PT Freeport Indonesia," Jonan was quoted as saying.

Indonesian authorities are looking to complete both acquisitions in 2018. Jonan said negotiations are underway, legal drafting has started and written agreements are expected to be finalized in the near term.

In late August, Freeport agreed to divest the 51% interest in its Freeport Indonesia subsidiary to local parties and build a smelter in return for an extension to its operating permit for the Grasberg mine beyond 2021.

Indonesian State-Owned Enterprises Minister Rini Soemarno recently indicated that the government expects to conclude the divestment deal by February 2018.

A Reuters analysis suggested that Rio Tinto may be best served by divesting its interest in the Grasberg copper-gold mine.

Rio Tinto also holds the key to any deal, according to the analysis, and any objection by the company may stall the process, a scenario the Indonesian government would want to avoid.