T

he majority shareholders of copper and gold mining giant Freeport Indonesia have agreed to divest part of their stake in the company in order to comply with mining regulations, despite continued uncertainty over its continued operation, according to an executive.

The company, a subsidiary of US giant Freeport-McMoRan Inc., said it was aiming to divest an up to 10 percent stake to Indonesian entities by October.

'€œWe have no problem with divestment and have said as much to the Indonesian government. By October, we will see Indonesian shareholding at a total of 20 percent,'€ Freeport Indonesia president director Maroef Sjamsoeddin said.

The Indonesian government currently holds a 9.36 percent stake in Freeport Indonesia, while the remainder is held by Freeport-McMoRan. According to a regulation issued last year, Freeport-McMoRan has to divest more shares until Indonesian entities own at least 30 percent of the firm.

Unlike other firms, the divestment for Freeport is only 30 percent because the company has promised to develop an underground mine. Foreign-owned mining companies are required to divest at least 51 percent of their shares to local companies. However, they may divest only 40 percent if they are also involved in refinery operations, and 30 percent if they are involved in refinery operations and underground mining activities.

Energy and Mineral Resources Minister Sudirman Said revealed that President Joko '€œJokowi'€ Widodo had ordered that the divestment related to Freeport Indonesia'€™s share should follow the existing regulation, eliminating concerns that the regulation would be reviewed.

Valuation is currently underway to calculate the value of Freeport'€™s shares, which will then be divested to local investors.

'€œAs a business player, we want to protect this from misappropriation because of our previous bad experiences. Everything must be transparent and accountable,'€ Maroef said.

In the past, the total ownership of the government and a local company in Freeport Indonesia was 20 percent, but the company sold its stake back to Freeport.

The Energy and Mineral Resources Ministry'€™s director general for mineral and coal, Bambang Gatot Ariyono, said the government would use a variety of methods to determine the valuation.

'€œThe calculation has to be clear and able to give investment certainty. The government will calculate, the company will calculate too. The company will give an offer to the government and the government'€™s task is to decide whether the offer is fair,'€ Bambang said.

The obligation to divest 30 percent is part of a renegotiation of the company'€™s contract of work (CoW) with the government of Indonesia. The government is currently trying to adjust several points in Freeport Indonesia'€™s CoW to ensure the state receives more benefits from the company'€™s operation in the country.

Part of the deal is an increase in the royalties that must be paid to the government. The amount rose last year to 4 percent from 3.5 percent for copper, to 3.75 percent from 1 percent for gold and to 3.25 percent from 1 percent for silver.

Following the increases, Maroef said the company had paid an additional US$78 million in the third and fourth quarters last year.