Freeport Indonesia Considers IPO

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Freeport Indonesia Considers IPO
Tito Summa Siahaan | July 04, 2012

US firm Freeport McMoRan's giant Grasberg mine in West Papua, which has the world's largest gold deposits and third-largest copper deposits, is pictured in this July 2005 file photo. (Reuters Photo)

Freeport Indonesia, the local unit of the world’s largest copper and gold miner, is considering an initial public offering to abide by government rules on foreign ownership and improve corporate governance, its chief executive said.

“We are considering several options, including an IPO,” Rozik Soetjipto, the president director of Freeport Indonesia, said on Tuesday. He disclosed the plan in a meeting with BeritaSatu Media Holdings, which the Jakarta Globe is part of.

Rozik said the capital market debut was expected to boost corporate governance and transparency at the company.

“The IPO would be good for Freeport Indonesia, as it tends to be more accountable and transparent,” he said. He did not disclose possible terms of the IPO, such as the time frame and the size of the sale.

“Should everything go smoothly, a real strategy heading to that [IPO] direction would be carried out by 2013,” he said. But Rozik emphasized that the parent company, US-based Freeport-McMoRan Copper & Gold, would have the final say on the matter and an IPO was just one option.

Rozik said the company, which runs the country’s biggest copper mine in Papua, was focused on renegotiating its contracts ending in 2021 with the government.

Indonesia has urged foreign miners operating in the country to sell stakes to local companies, eventually bringing overseas ownership to less than half. The move is meant to protect the country’s abundant natural resources and generate more revenue from extractive industries.

President Susilo Bambang Yudhoyono issued a regulation in February requiring foreign investors with mining business permits (IUPs) and special mining business permits (IUPKs) to reduce their stakes to 49 percent in mining operations in Indonesia within a five-year period.

Freeport-McMoRan owns a 90.64 percent stake in Freeport Indonesia and the government owns the rest.

Freeport Indonesia claims to be the largest single taxpayer in the country. Last year it contributed $2.4 billion to the state coffers through taxes or dividends, and it spent another $2.5 billion through indirect means such as employment.

It had invested a total of $8.6 billion in Indonesia as of 2011 and planned to spend at least $16.9 billion through 2041, should its contract be extended another 20 years.

If Freeport Indonesia lists its shares, it could be the largest-ever IPO in the country. The company claimed on Tuesday to be responsible for 1.59 percent of the nation’s gross domestic product Indonesia’s economy grew 6.5 percent to $817 billion last year, according to government data.

Freeport-McMoRan, which is listed on the New York Stock Exchange, has a total market capitalization of $32 billion.

Astra International, Indonesia’s largest automotive distributor, is valued at $30 billion, while Unilever has a market value of $20 billion.

Indonesia itself accounted for $5 billion of Freeport-McMoRan’s total $21 billion in revenue last year, Bloomberg data show.

Analysts and economists in Jakarta were divided over the potential IPO, particularly about whether the share sale would benefit native Papuans, some of whom have been clamoring for independence for the resource-rich island.

“They should not be allowed to have an IPO instead of a divestment,” Ikhsan Modjo, an economist at the Institute for Development of Economics and Finance (Indef), said on Tuesday. “Their contract of work clearly stated that they must divest the shares to the government first.

“The move [to hold an IPO] would not benefit Indonesia, let alone Papuans, as the stake would just end up in the hands of foreign investors.

Pri Agung Rakhmanto, an executive director at the Reforminer Institute think tank, said an IPO could create problems.

“As previous cases have shown, divesting mining company shares to the regional government is problematic,” he said. He was referring to the divestment of Newmont Nusa Tenggara, which runs the Batu Hijau mine on Sumbawa Island, a process that has been mired in controversy and allegations of embezzlement and corruption.

Pri Agung and Ikhsan agreed selling the stake directly to the government or local companies would be better than an IPO.

“An IPO would not be well received,” Pri Agung said. “I think the government would prefer for Freeport to sell its shares to them, rather than to the public, because they do not want to be sidelined.”

Ikhsan urged Freeport Indonesia to sell the stake to Papuans. “For the sake of Papuans, regionally owned Papuan companies should cooperate with listed state-owned companies to bid for the divestment,” he said. “That way, many eyes would oversee the process.”

Freeport Indonesia has been at the center of criticism over tailings pollution around its mining site and a major political conflict between the regional and central governments.

Additional reporting by Dion Bisara & Francezka Nangoy

ENDS

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