TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Analysis: MIND ID on track in acquiring a controlling stake in Vale Indonesia
Vale Canada, a subsidiary of Brazilian mining firm Vale, and Sumitomo Metal Mining (SMM), a unit of Japanese conglomerate firm Sumitomo Group, have finally agreed to divest parts of their stake in Vale Indonesia (INCO) to Indonesian state-owned mining holding company Mineral Industri Indonesia (MIND ID).
Change Size
PRINTING ALUMINUM Bars: Some Inalum employees are preparing aluminum bars after printing at the factory. PT Inalum can produce 225,000 tons of aluminum bars every year. (JP/Apriadi Gunawan)
V
ale Canada, a subsidiary of Brazilian mining firm Vale, and Sumitomo Metal Mining (SMM), a unit of Japanese conglomerate firm Sumitomo Group, have finally agreed to divest parts of their stake in Vale Indonesia (INCO) to Indonesian state-owned mining holding company Mineral Industri Indonesia (MIND ID). The initial deal was inked with the signing of a Head of Agreement (HoA) on the sideline of the 2023 Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting, bringing MIND ID to be one step closer to becoming INCO’s controlling shareholder.
The selling of Vale Canada and Sumitomo’s stake is done to meet the requirement to extend Vale Indonesia’s mining permit, in which foreign investors are required to divest 51 percent of their stakes to local buyers, as regulated in Article 6(3) of Indonesia’s Mining Law (UU No. 3/2020). Currently, Vale Indonesia’s contract of work is set to expire on Dec. 28, 2025. MIND ID’s acquisition will extend the permit into a special mining business permit (IUPK) valid for 20 years after the first permit ends in 2025.
Vale Canada and Sumitomo’s stake in Vale Indonesia agreed to be sold amounted to 14 percent and will result in MIND ID’s stake in Vale Indonesia to rise from 20 percent to 34 percent, making the Indonesian state-owned company Vale Indonesia’s largest shareholder. Meanwhile, Vale Canada and Sumitomo’s stake will decrease to 33.9 percent and 11.5 percent, respectively.
According to the HoA, MIND ID as the majority shareholder has the right to name Vale Indonesia’s president director and president commissioner. This would give MIND ID strong influence over Vale Indonesia’s operational and financial affairs. However, as the combined stake of Vale Canada and Sumitomo’s is bigger than MIND ID’s, Vale Canada and Sumitomo may have bigger influence together with block voting agreement.
Furthermore, HoA is often referred to as equivalent to a memorandum of understanding (MoU) and has not yet stipulated the key terms and conditions of the final transaction. Obstacles in the future may still hinder the final transaction from taking place.
However, the pricing of assets, which is usually the most difficult aspect of acquisition, may not be a major issue in this transaction. First, the size of the transaction is only several hundred million dollars, which is considered small compared to similar transaction in the mining industry. Second, 20 percent of Vale Indonesia shares are listed Indonesia Stocks Exchange (IDX), so determining share price is more straightforward and transparent.
What’s More
Vale Indonesia has been operating in Sulawesi since 1968, and it now has some 118,000 hectares (ha) of mining concession in three sites. The firm’s long-term interest was indicated by its big investment in three hydropower plants with a total capacity of 365 megawatts (MW) to run its mining and refining operations. The company has also signaled its commitment to higher standards of transparency by enacting the initial public offering for 20 percent of its shares through the Indonesia Stock Exchange (IDX) in May 1990.
Previously, Vale Indonesia has defended its commitment to developing Indonesia’s downstream industry against harsh criticism by MIND ID about its three ongoing high-pressure acid leaching (HPAL) nickel smelter projects. They include two South Sulawesi facilities that cost US$2 billion and US$2.5 billion in Sorowako and Bahodopi, respectively, as well as a US$4.5 billion facility in Pomalaa, Central Sulawesi. The three HPAL smelters are targeted to produce 180,000 tonnes of mixed hydroxide precipitate (MHP), which is used for electric vehicle batteries.
Vale Indonesia acknowledged the importance of implementing environmental, social, and corporate governance (ESG) principles in its operation, since about 90 percent of its concessions are nationally-protected forests. The firm has targeted for 70 percent of the area it mines, or around 48 percent of the concessions it got, to be eligible for environmental reclamation by 2025. Vale Indonesia also aims to reduce its greenhouse gas (GHG) emission by 33 percent as of 2030, which it does with its own hydro- and natural gas power plants.
What we’ve heard
A source in the government said that while President Joko Widodo was in the United States, he also met with Freeport McMoran Chairman Richard Adkerson several times to discuss the possibility of adding a 10 percent share divestment for Indonesia. According to him, the meeting between Jokowi and Adkerson at the Waldorf Astoria Hotel, Washington DC, USA some time ago was just a follow-up meeting.
The increase in the Indonesian government's stake in Freeport is not free. According to another source, the additional divestment of shares for the government is a condition for Freeport to obtain a concession extension in Indonesia for 20 years, from 2041-2061.
On the other hand, PT Freeport Indonesia's commitment to build a smelter is not on target. To date, the construction of the smelter there has only reached 70 percent. Freeport is suspected of being incapable of building a smelter due to uneconomic considerations.
A businessman added that Adkerson's efforts to ask for an extension of Freeport's concession in Papua had already been conveyed two years ago to SOEs Minister Erick Tohir. The reason Freeport asked for an extension was because they found additional gold reserves in their area. Erick then conveyed this to President Jokowi.
The businessman said that majority ownership for Indonesia does not automatically give it control over Freeport Indonesia. With the current ownership composition, MIND ID cannot make full decisions on operational matters. Apart from occupying the chair of the main commissioner, Freeport Indonesia in fact controls operational matters.
Disclaimer
This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access the latest edition of Tenggara Backgrounder to read the articles listed below:
Politics
- The likelihood of a single-round 2024 presidential race
- PSI relies on Jokowi’s influence to reach parliament
- Indonesia falls short on Palestinian diplomacy
- Anies-Muhaimin seeks to chart a new course from Jokowi government
Business and Economy
- High interest rates prompt sale of foreign banks’ business units
- State budget’s revenue targets revised to accommodate spending
- Govt launches JETP investment plan with more ambitious targets
