For the best part of a quarter of a century Rio Tinto has struggled to extract any sort of return from its still accumulating $US2 billion investment in the routinely controversial Grasberg copper mine in Indonesia.
But some sort of pay day seems close at hand. Rio’s 40 per cent share in future production from the mine in the West Papua skies is emerging as a pivotal subject of dispute in the latest tug-of-war between Grasberg’s developer and senior owner, Freeport-McMoRan, and the Indonesian government.
Indonesia’s endgame is to inflate the level of local ownership of Grasberg from 9.36 per cent to a controlling 51 per cent. And, after years of bickering that most recently saw Freeport’s copper export licences suspended for 15 weeks, Freeport’s resistance of that ambition appeared to crack with a late-August agreement between miner and government on the pathway to nationalisation.
The deal signed on August 28 by two Indonesian government ministers and Freeport’s pugnacious chief executive, Richard Adkerson, was described as a “framework agreement”. That has proved to be a brave call. As it turns out, the agreement carried with it very little in terms of structure or definition. And, as a result, company and government are once again at loggerheads.
The return to more familiar levels of tension between miner and sovereign host was revealed in a letter penned recently by Adkerson that was leaked last week to Reuters. It revealed disputes over the structure and speed of the agreed sell-down and of the mechanics of valuation of the shares to be sold.
For the rest of this column: http://www.afr.com/business/grasberg-dispute-reveals-rios-whip-hand-20171004-gyuami