March 30, 2017 / 4:12 PM / in 7 months

Freeport near deal allowing Indonesia exports: minister

Indonesian Minister for Energy and Mineral Resources Ignasius Jonan speaks at parliament in Jakarta, Indonesia March 30, 2017 in this photo taken by Antara Foto. Antara Foto/M Agung Rajasa/ via REUTERS

JAKARTA/TORONTO (Reuters) - Freeport McMoRan Inc’s Indonesian unit is close to reaching a deal that would allow the world’s biggest publicly listed copper producer to temporarily resume concentrate exports, Indonesia’s mining minister said on Thursday.

The news boosted Freeport’s stock more than 6 percent as it is a marked shift in tone from the Southeast Asian nation, which banned miners from shipping copper concentrate on Jan. 12 as part of a hard line push to develop its local smelter industry and boost domestic benefits from mining.

Energy and Mineral Resources Minister Ignasius Jonan said a new deal would allow Freeport to resume exports for the next six months from Grasberg, the world’s second-biggest copper mine, while a new permit is negotiated.

“Freeport Indonesia has entered the final stage of discussions,” Jonan told parliament, adding the finance ministry will oversee talks, focusing on a “nailed down” tax rate and guarantees fiscal terms will not change.

“If they agree on the special mining permit, they can export, as long as they put forward a proposal to develop a smelter within five years,” Jonan said, adding Freeport agreed to adopt the new permit in principle.

Freeport stock climbed 6.1 percent to $13.50 in New York afternoon trading.

Phoenix, Arizona-based Freeport said it was progressing “constructive discussions” that would allow it to resume exports, while retaining its current contract until there is agreement on a new permit.

Indonesia wants Freeport to adopt a license that includes new taxes and royalties, but Freeport insists on retaining fiscal and legal guarantees.

Analysts were skeptical that a deal is close, noting big hurdles including taxes, divestment and the right to international arbitration.

“Ultimately, both sides have a tremendous incentive to find a resolution, but it seems like there are still significant hurdles,” said Jefferies analyst Chris LaFemina.

“It’s not clear to me that those long-term issues are any closer to being resolved.”

Under the ban, Freeport has shelved billions of dollars of planned investments, but is taking a hit on Grasberg, which represents about a third of its cash flow, on average, said LaFemina.

Freeport must also to divest 51 percent of its Indonesian unit - up from 30 percent - under the new permit.

Last year, Freeport valued Grasberg at $16.2 billion. It offered a 10.64 percent stake, for $1.7 billion, to the government, which proposed $630 million.

Jonan said a valuation would reflect “commercial or market value”, but not include the value of mineral resources.

If permit issues are unresolved by June 17, Freeport has warned it could go to arbitration and seek damages.

Reporting by Wilda Asmarini in Jakarta and Susan Taylor in Toronto; Writing by Fergus Jensen; Editing by Susan Thomas and Marguerita Choy

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