LAUNCESTON, Australia, Dec 7 (Reuters) – A proposed three-way deal between the Indonesian government, Rio Tinto and Freeport-McMoRan to clean up the ownership of the giant Grasberg copper-gold mine looks like one of those rare situations where everybody wins.
Except that it isn‘t. Certainly all parties may walk away feeling that they have achieved the best outcome, assuming the complicated deal can be pulled off at a price acceptable to all three.
But this ignores the wider picture in which any short-term advantage is likely to be offset by compounding longer-term problems. First, a brief re-cap of what’s at stake. Grasberg is the world’s second-largest copper mine, as well as being one of the five-biggest gold mines, and is further advantaged by having high grades and low costs.
Freeport owns just over 90 percent of the mine, but Rio Tinto, under a 1996 joint venture, has a 40 percent interest in Freeport’s contract, entitling it to 40 percent of production above specific levels until 2021 and 40 percent of all production after 2022.
In August Freeport agreed to sell 51 percent of its Indonesian unit to the government in order to meet the requirements of the Southeast Asian nation’s revised mining law.