Freeport Open to Negotiation on Divestment Share Price

Freeport Indonesia is open to negotiation with the government on its plan to divest 10.64 percent of its shares. The company issued the statement in response to the government’s objection to the share price offered by Freeport, which it considered too high.

Freeport Indonesia spokesperson Riza Pratama said that the government had sent a letter of objection to the divestment share price offered by the company on 13 January 2016.

The US-based mining company set the price of its 10.64 percent shares at US$ 1.7 billion or around IDR 23.5 trillion. According to Riza, the stock price is based on a fair market value analysis that took into account the operating life of the Grasberg mine and the company’s contract of work. (Read: President Asks 5 Conditions for Freeport’s Contract Extension)

Riza said that if the government objected to the proposed price, Freeport would be willing to negotiate. But the company has not received a counter-offer from the government. "We will review and respond to any feedback we receive from the government," he told Katadata, Thursday (28/4).

Meanwhile, Head of Communications of the Ministry of Energy and Mineral Resources Sudjatmiko admitted that the government has not sent an official letter stating its price offer, although it had sent a letter of objection to the share price offered by Freeport on 11 April 2016.

Government calculations put the Freeport’s divestment share price at just US$ 630 million. This price was calculated using the replacement cost method in compliance with Energy Minister Regulation No. 27/2013. (Read: Government Rejects Freeport’s Proposed Stock Price)

The regulation sets out procedures for calculating the divestment share of foreign investment mines. The Article 13 of the regulation states that the divestment share price is based on replacement cost. The cost is calculated cumulatively based on the investment incurred from the exploration phase up to the share divestment.

That is why the government believes that the price offered by Freeport is too high. "Freeport Indonesia has to resubmit an offer using a replacement cost method in compliance with the Energy Minister Regulation No. 27/2013," he said. (Read: Government Ensures SOE to Acquire Freeport)

By law, the government requires every foreign mining company to divest 20 percent of its share to domestic investors as set out in Law No. 4/2009 on Mineral and Coal. Since the government has already acquired a 9.36 percent stake in Freeport, the company’s remaining obligation is to sell 10.64 percent of its shares.