A local mining association has called on the government to allow gold and copper miner PT Freeport Indonesia (PTFI) to meet its 51 percent divestment requirement through an initial public offering (IPO), which is regarded as fairer and less costly to the two conflicting parties.
The government has been bogged down in lengthy negotiations with PTFI, the local unit of United States-based mining giant Freeport-McMoRan (FCX), since the beginning of the year over the latter’s future operation in the country.
The government has demanded PTFI issue new shares to be bought by national entities so that the latter can meet its 51 percent divestment requirement. Meanwhile, the company prefers to go public by floating its shares on the Indonesia Stock Exchange (IDX).
Indonesian Mining Association (IMA) executive director Syahrir A.B. said that an IPO would be a better option because the price of PTFI shares would be determined in accordance with fair market value.
At present, the government and FCX have jointly established an independent valuator team to calculate the value of the company’s shares. Nonetheless, the miner has stated that the valuation method should include its future production from the Grasberg mine in Papua until 2041, compared with the government’s insistence on only calculating it until 2021.
“We think that the IPO option can accommodate the interests of all stakeholders involved,” Syahrir said on Tuesday.
“The settlement of the PTFI case will be a precedent for other mining companies in the future. So, if we fail to handle it correctly, the mining sector’s investment climate will be badly affected.”
Ignatius Denny Wicaksono, head of issuer development at the IDX, also welcomed the idea of PTFI going public.
He said the government did not have to worry that foreign entities would take over a majority stake in PTFI through an IPO because it could secure ownership portions by certain national entities, including regional administrations and state-owned enterprises, through a fixed allotment mechanism.
“All this time, it has been common for a company to allocate 98 to 99 percent of its offered shares to certain buyers, while only 1 or 2 percent of shares are really offered to the public,” Denny said, adding that the IDX could allot the shares in line with the issuer’s needs.
Furthermore, he said the government could also sell its stake in PTFI easily on the secondary market if it decided to do so someday, while the general public would be able to buy the company’s shares and monitor its performance transparently.
As of Oct. 13, there were 44 mining firms among the total 560 listed companies in the IDX. The listed miners have a combined market capitalization of Rp 318.26 trillion (US$23.46 billion), or 4.89 percent of the bourse’s total market capitalization.
The IMA also stated that ever-changing divestment policies had long hampered the renegotiation and amendment of several contracts of work (CoWs) in the country, including those held by PT Nusa Halmahera Minerals and PT Weda Bay Nickel.
As of April, the government had only been able to complete the amendment of 21 of the total 34 CoWs since renegotiations started in 2010 as mandated by the 2009 Mining Law.
While the miners’ original CoWs stipulated a 51 percent divestment requirement, the previous administration decided to revise this to 30 percent or 40 percent under certain conditions. However, President Joko “Jokowi” Widodo’s administration reversed it back this year.
Meanwhile, Emanuel Bria, the country manager for Indonesia at the Natural Resource Governance Institute (NRGI), said the government’s obsession with taking majority stakes in foreign mining firms could backfire as it would be obliged to fund future operations and further burden the state budget.
“For instance, in the case of PTFI, the government needs to prepare a huge amount of funds to take over 51 percent of the company’s shares as well as to develop the underground Grasberg mine, estimated to cost around $7 billion,” he said.
Source: Viriya P. Singgih
1 November 2017