Further to yesterday’s Rio Tinto Grasberg news, Freeport-McMoRan (FCX) has entered into a Heads of Agreement with the Indonesian state-owned enterprise PT Indonesia Asahan Aluminium (Inalum) and PT Freeport Indonesia’s (PT-FI) joint venture partner Rio Tinto. Under the terms of the non-binding Heads of Agreement, Inalum will acquire for cash consideration of $3.85 billion all of Rio Tinto’s interests associated with its Joint Venture with PT-FI, and 100% of FCX’s interests in PT Indocopper Investama (PT-II), which owns 9.36% of PT-FI.
Inalum will contribute the Rio Tinto interests to PT-FI, which will expand PT-FI’s asset base, in exchange for a 40% share ownership in PT-FI, pursuant to arrangements that will enable FCX and existing PT-FI shareholders to retain the economics of the revenue and cost sharing arrangements under the Joint Venture. Following completion of the transaction, Inalum’s share ownership will approximate 51% of PT-FI (subject to an agreement between shareholders to replicate the Joint Venture economics), and FCX’s ownership will approximate 49%.
Richard C. Adkerson, Vice Chairman of the Board, President and Chief Executive Officer of FCX, said, “This agreement marks a significant milestone toward establishing a new long-term partnership with the Republic of Indonesia to provide long-term stability for PT Freeport Indonesia’s operations. Through this transaction, the Government will achieve its ownership objectives in a manner that preserves the long-term value for FCX shareholders and the people of Indonesia through 2041. We thank Rio Tinto for their support over our more than 20-year successful partnership. We look forward to a mutually positive and beneficial partnership with Inalum that will continue to provide substantial benefits to the people of Papua; the Republic of Indonesia; and to our local employees, suppliers and contractors while generating attractive returns for our shareholders.”
At closing, Rio Tinto will receive $3.5 billion, as we noted yesterday, and FCX will receive $350 million, in cash proceeds from Inalum. In addition, Rio Tinto will forego in favour of FCX an amount equivalent to Rio Tinto’s share of joint venture cash flows received since January 1, 2018 through closing.
Following completion of the transaction, FCX expects its share of future cash flows of the expanded PT-FI asset base, combined with the cash proceeds received in the transaction, to be comparable to its existing share of future cash flows under the current Joint Venture arrangements. FCX will continue to manage the operations of PT-FI.
The transaction, which is expected to close during the second half of 2018, is subject to the negotiation and documentation of definitive agreements, including purchase and sale agreements, the extension and stability of PT-FI’s long-term mining rights through 2041 in a form acceptable to FCX and Inalum, a shareholders’ agreement between FCX and Inalum providing for continuity of FCX’s management of PT-FI’s operations, and resolution of environmental regulatory matters satisfactory to the Indonesian Government, FCX and Inalum. The terms of these agreements will be subject to FCX Board approval.
