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Rio said to hold talks with Indonesia on Grasberg mine exit

Talks come as Indonesia and Freeport are at loggerheads on ownership.

Rio Tinto Group has held talks with Indonesian groups, including state-owned Indonesia Asahan Aluminium, about a possible exit from its interest in the giant Grasberg copper and gold operation, according to people with knowledge of the matter.

Executives at Rio held meetings in recent weeks, including in Indonesia, on a potential sale of its income stream asset that’s part of the joint venture agreement with Grasberg’s operator Freeport-McMoRan, said the people, asking not to be identified as details are private.  

Rio is studying a range of options that could enable it to sell on its interest, the people said. There’s no guarantee that the talks will advance, or that any deal will eventuate, the people said.

The company declined to comment in an emailed statement and Freeport didn’t immediately respond to a request for comment. Hadiyanto, secretary general at Indonesia’s Finance Ministry, didn’t immediately respond to phone calls and text messages seeking comments.

Talks have taken place while Indonesia is at loggerheads with Freeport over the government’s proposals to increase local ownership in Grasberg to 51%. Freeport in August agreed to a framework to divest its majority stake and commit to the building of a smelter, but has said the process is contingent on several issues, including reaching an agreement on “fair value” for the stake.

Under Freeport’s pact with Indonesia, Grasberg will see an investment of as much as $20 billion through 2031 to further develop the mine, including the construction of a smelter. For Rio to commit to any spending, an investment would need to prove more valuable than competing opportunities, chief executive officer Jean-Sebastien Jacques said in a September interview.

The divestment process and valuation of the asset must be concluded by first quarter of 2019, State-Owned Enterprises Minister Rini Soemarno told reporters this month in Jakarta.

Indonesia Asahan Aluminium, known as Inalum, will be converted into a mining holding company and lead the state’s purchase of the stake in Freeport’s unit, according to a presentation by the state enterprises ministry.

In January 2016, Freeport valued its Indonesian operations in a government filing, excluding an interest held by Rio, at $16 billion, according to Freeport chief executive officer Richard Adkerson. Grasberg is the world’s second-largest copper and biggest gold mine.

Under an agreement struck in the 1990s to help Freeport finance an expansion of Grasberg, Rio is entitled to cash flows on a 40% share of production above specific levels until 2021 and on 40% of all production after that year, dependent on export disruptions.

Rio last recorded any output from the Grasberg venture in 2014, according to filings. Stoppages and delays at the giant mine — including a strike this year — mean it could be 2023 before Rio receives its full entitlement share of output, Freeport’s chief financial officer Kathleen Quirk said in January.

Rio, which has offloaded about $8 billion of assets since 2013, sees a window of opportunity for additional asset sales amid a rebound in metals to energy prices, according to Jacques. Rio rose 0.8% to 3 628 pence in London by 11:21am.

© 2017 Bloomberg

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