The Indonesian government’s efforts to increase share ownership in PT Freeport Indonesia (PTFI) have paid off. Freeport McMoran CEO Richard Adkerson and PTFI CEO Tony Wenas agreed to release another 20 percent stake in the mining company to the government.
In a recent statement, President Joko “Jokowi” Widodo revealed that Freeport is willing to divest 20 percent of its shares for free. As compensation, the government will extend PTFI’s special mining permit (IUPK), which expires in 2041. “The reward is a contract extension after 2041, until 2061,” President Jokowi said on Monday (29/5).
After the divestment occurs, the government, through MIND ID Mining SOE Holding, will become the majority shareholder with 71 percent share ownership. Currently, the composition of PTFI shareholders is dominated by MIND ID at 51 percent, while 49 percent are owned by Freeport McMoran.
MIND ID’s responsibility as majority shareholder
Previously, the government requested that Freeport release 10 percent of its shares to the government as a condition for extending the mining contract. Freeport is willing to provide a larger portion of shares.
However, getting free shares does not mean that MIND ID can simply relax. As the majority shareholder, MIND ID has the responsibility to develop PTFI’s business. Of course, this requires a lot of money.
As an illustration, PTFI CEO Tony Wenas explained that until 2041, the management of copper and gold mines in Papua will require a substantial investment of up to US$36.6 billion. This significant investment includes various aspects, such as the smelter construction in Gresik, East Java.
As a result, MIND ID will need to allocate a minimum of US$150 million for the next two decades.
When comparing the investment cost to the potential dividend payments to the state, it is relatively lower. For instance, PTFI disbursed US$576 million in dividends last year alone.
Furthermore, PTFI has set a target of US$1.6 billion in dividend payments for this year and the following year, assuming that the copper price remains stable at around US$4 per pound.
PTFI contribution to government’s coffers
The Investment Minister and Head of the Investment Coordinating Board (BKPM) Bahlil Lahadalia has confirmed that the government is highly likely to extend PTFI’s mining contract.
This decision stems from the company’s impressive performance, prompting the government’s interest in augmenting its shareholding.
In 2022, PTFI generated substantial state revenues of US$3.32 billion, including taxes, dividends, and non-tax state revenue. The government has set a target of US$3.76 billion for state revenue this year.
Alongside increasing its share ownership, the government has also made a request to PTFI: the construction of a copper concentrate smelter in Papua, which serves as a condition for the contract extension.