Aug 30, 2017 15:53:44

Mining – Deal between Freeport Indonesia (FI) and the Indonesian government

1. Legal base between the Indonesian government and FI is Special Mining Business Permit (Izin Usaha Pertambangan Khusus / IUPK), not Contract of Work (Kontrak Karya / KK)

2. 51% stake divestment of FI is for Indonesia’s national interest. Further details on the implementation will be discussed further.

3. FI will build processing and refinery facility in next five years which should be completed by October 2022 at the latest

4. Under IUPK, the Indonesian government’s revenues would be higher and more stable than under the previous contract (KK).

5. FI will obtain extended contract with a maximum operational period of 2x10 years, or up to 2041.

Based on our channel checks, at the moment all state-owned mining companies - including Antam ($ANTM) – are interested to acquire stakes in FI. Media sources reported that Antam’s CEO met with the Minister of Maritime Corrdinator Luhut Panjaitan yesterday morning, after the Minister of Energy and Mineral announced that FI will divest some of its stakes.

We see that Antam and Inalum are among the strong candidates to buy the stake of FI. In terms of mining expertise, Antam has better experience in mining, refinery, and various metal mining materials processing. Inalum's expertise is on processing alumina into aluminum, and it does not have experience in mining activities.

However, our source said that current government's plan is to create a National Resources Holding company which include Antam, Inalum, Freeport, etc. Hence, Freeport is likely to be a sister company of Antam. (Andey Wijaya)