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Wired News – Indonesian Government Plans to Acquire Rio Tinto's Stake in Grasberg Copper Mine

LONDON, UK / ACCESSWIRE / December 07, 2017 / Active-Investors issued a free report on Rio Tinto PLC (NYSE: RIO), which is readily accessible upon registration at www.active-investors.com/registration-sg/?symbol=RIO as the Company's latest news hit the wire. In a December 05, 2017, report by news agency Reuters, the Indonesian Government ("the Government") is planning to acquire Rio Tinto's stake in Grasberg copper mine located in Indonesia. Grasberg copper mine is jointly owned by Freeport-McMoRan Inc. (NYSE: FCX) and Rio Tinto since 1996. According to Ignasius Jonan, the Minister of Energy and Mineral Resources, Indonesia, the Government plans to acquire 51% stake in the mine by February 2018 which included Rio Tinto's 40% stake. Sign up now for our free research reports at:


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Commenting on the matter, Ignasius Jonan said:

"To achieve the 51 percent, there's Rio Tinto's 40 percent 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."

Minister Jonan also informed that the Government was in the process of negotiating the terms of the acquisitions and has started working on the legal framework. The discussions are being held with the companies and members of the Ministry of Finance and SOE Ministry. Apart from Rio Tinto's 40%, the Government also plans to acquire PT Indocopper Investama's 9.3% stake in Freeport-McMoRan Indonesia, a wholly owned subsidiary of Freeport-McMoRan. The Government will disclose the final details of the agreement and the Government's special mining permit in near future.

There has been no official communication on the matter from Freeport-McMoRan, Rio Tinto, or Inalum

Rio Tinto's Stake in Grasberg mine

The Grasberg mine is the world's second-most productive gold and copper mine. Grasberg's copper reserves have been estimated at 790,000 metric tons and its gold reserves total about 25.8 million ounces.

Rio Tinto's stake in the Grasberg mine is 40% and majority stake is owned by Freeport-McMoRan via its Indonesian unit. The stake allows Rio Tinto to receive a 40% share of the production from the mine on crossing certain pre-agreed levels till 2021 and 40% of the entire production after 2022. However, Rio Tinto has not seen any benefit since 2014 due to strikes and other disruptions. Rio Tinto's financials indicate that the Company had invested nearly $2 billion since it acquired the stake in the mine, however the net profits earned in the same period were just $1.7 billion.

The backdrop

In 2016, the Government passed a legislation and a new licensing agreement which required all foreign mining companies to divest 51% stake in Indonesian mines to local companies.

The ownership of the Grasberg mine came into limelight after Freeport-McMoRan signed a Framework for Agreement (FoA) in August 29, 2017, with the Indonesian Government and agreed to reduce its stake in the mine to 49%. This would allow the Indonesian Government to own the majority stake with 51% while the FoA allowed Freeport-McMoRan to have operational control and governance of the mine till 2041.

However, this FoA put a question on the fate of Rio Tinto's stake. The matter was further complicated when in a September 2017 the Government shared its divestment plan which mandated among other conditions that Freeport-McMoRan end its partnership with Rio Tinto before the divestment. Freeport-McMoRan strongly disagreed with this including other matters related to the divestment plan like the valuation, timing, and structure of the divestment.

The matter was somewhat resolved in October 2017, when the Government agreed to continue with the basic principles of the August 2017 FoA. After negotiations since the disagreement regarding the divestment plans, Freeport-McMoRan and the Government agreed on three main points: one, Freeport-McMoRan must divest its stake in a manner that the Government would own 51% stake; two, Freeport-McMoRan would build a smelter processing facility within five years after getting the approval; and third, is to increase state revenues from overall production from the mine, including Non-Tax State Revenues (PNBP), local taxes, and levies.

Impact on Rio Tinto

In the meanwhile, sources close to the matter shared that since October 2017, Rio Tinto has been having talks with various Indonesian businesses including state-owned Inalum for possible sale of its stake in the mine. The news shared by Minister Jonan puts an end to the speculation on this matter and allows the Company to exit from this venture with some good news.

About Rio Tinto PLC

Rio Tinto is headquartered in London, UK and is a leading global mining group that focuses on finding, mining, and processing the Earth's mineral resources. The Company owns and operates mines, mills, refineries, smelters and power stations, research and service facilities to produce aluminium and copper, diamonds, gold and industrial minerals, iron ore, coal, and uranium. It has operations in over 35 countries across six continents.

Stock Performance Snapshot

December 06, 2017 - At Wednesday's closing bell, Rio Tinto's stock marginally rose 0.53%, ending the trading session at $47.45.

Volume traded for the day: 3.00 million shares, which was above the 3-month average volume of 2.30 million shares.

Stock performance in the previous six-month period – up 12.68%; past twelve-month period – up 20.89%; and year-to-date - up 23.37%

After yesterday's close, Rio Tinto's market cap was at $85.29 billion.

Price to Earnings (P/E) ratio was at 13.83.

The stock has a dividend yield of 4.64%.

The stock is part of the Basic Materials sector, categorized under the Industrial Metals & Minerals industry.


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