The government’s plan to increase its stake in gold- and copper-mining company PT Freeport Indonesia (PTFI) may be an unnecessary burden on state-owned mining holding company PT Mineral Industri Indonesia (MIND ID), experts contend.
Indonesia owns around 51.2 percent of PTFI through MIND ID, while United States-based mining giant Freeport McMoRan owns the remaining 48.8 percent.
Bisman Bakhtiar, executive director of the Center for Energy and Mining Law (Pushep), said increasing Indonesia’s stake in PTFI would be an “ill-advised decision” for MIND ID, considering that operational control over PTFI would still remain with Freeport McMoRan.
“MIND ID has to focus on developing the downstream industry and on what they already have on their plate, considering PTFI’s lagging copper-smelter construction,” he told The Jakarta Post on Wednesday.
“The slow progress reflects a hiccup in Indonesia’s downstream industry development. Freeport will still continue exporting copper ore until next year,” he added.
Aluminum-mining firm Indonesia Asahan Alumunium (Inalum), which is now a subsidiary of MIND ID, bought the stake in PTFI for US$3.85 billion in October 2018. The multibillion-dollar acquisition and several hefty infrastructure investments caused its debt to skyrocket 378 percent year-on-year (yoy) in the third quarter of 2019.
MIND ID’s revenue increased 34 percent from Rp 93.75 trillion (US$6.3 billion) to Rp 126 trillion in 2022 on the back of rising commodity prices. Meanwhile, the company saw its profit rise 53.5 percent yoy to Rp 22 trillion.
MIND ID and Freeport McMoRan did not immediately respond to requests for comment.
Indonesian Mining Association (IMA) executive director Djoko Widajatno suggested MIND ID focus on managing the ownership of the existing shares properly by ensuring business certainty and legal consistency to gain investor trust.
“Increasing MIND ID’s shares in PTFI would add to the burden for the majority shareholder. This will increase the financial contribution the company has to consider for the entire development of PTFI,” he told the Post on Wednesday.
Meanwhile, PTFI spokeswoman Katri Krisnati said on Tuesday the company welcomed the government’s consideration to extend PTFI’s mining permit beyond 2041. “We are fully committed to following prevailing regulations,” she said.
The Indonesian government is negotiating the extension of PTFI’s special mining business permit (IUPK), which is currently slated to expire in 2041. Increasing MIND ID’s stake in PTFI is among the terms and conditions considered for extending the permit, according to Investment Minister Bahlil Lahadalia.
“The state-owned company’s [MIND ID] debt resulting from acquiring Freeport Indonesia is expected to be paid off in 2024, so the government is considering a possible permit extension [and] an increase in its stake by around 10 percent,” Bahlil said on Monday. “Discussion on both matters is still ongoing.”
The acquisition of the PTFI stake was deemed a “promising investment” by then-MIND ID president director Orias Petrus Moedak, but he expected the company’s financial performance to “go down over the next one, two or three years” before yielding annual dividends of around $1 billion starting in 2023.
In addition to PTFI and Inalum, the holding company also owns majority stakes in coal miner PT Bukit Asam, tin-miner PT Timah and nickel- and gold-miner PT Aneka Tambang (Antam).
Rizal Kasli, the chairman of Indonesian Mining Experts Association (Perhapi), said increasing a stake in a company was a business-to-business matter and completely feasible.
“The government can discuss about that when Freeport’s permit nears its expiry date in the next 18 years, or they can discuss it now. But, of course, it has to be based on a comprehensive study,” he told The Jakarta Post on Wednesday.
The government has obligated local mining companies to build domestic processing facilities in order to gain more economic value from the country’s mining industry.
To support this policy, the administration of President Joko “Jokowi” Widodo began in 2020 to impose a ban on mineral-ore exports to ensure local smelters would have enough raw materials.
Investment in domestic processing facilities requires massive upfront capital, but Indonesia is placing its bet on long-term returns.
The government is also considering increasing its currently 20-percent stake in PT Vale Indonesia, the local subsidiary of Canadian diversified miner Vale, as part of its policy to gain more control over major mining companies operating in Indonesia.