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Analysis: MIND ID on track in acquiring a controlling stake in Vale Indonesia
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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.
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