Gold mid-tiers’ Q3 2024 fundamentals
All-time-high gold prices combined with relatively-contained costs catapulted unit earnings to another epic record.
While Phoenix-based Freeport McMoRan remains at loggerheads with the Indonesian government over selling a majority stake in its Grasberg mine in the remote Papua province, Rio Tinto is reported to be seeking an out sooner rather than later.
Bloomberg reports Melbourne-based Rio has held talks with a number of Indonesian groups about exiting its interest in the Grasberg mine which this year is on track to produce more than 450,000 tonnes of copper (compared to Rio’s target of around 470,000 tonnes in 2017 across its operations) and a staggering 1.6m ounces of gold.
Rio’s deal with Freeport was struck in 1995 and entitles Rio to a 40% share of production when certain output levels are hit. But as a result of strikes and other disruptions and as the open pit at Grasberg nears the end of its life, Rio hasn’t seen any benefit since 2014.
Last year, Freeport offered a 10.6% stake in its Indonesia subsidiary that valued Grasberg at $16.2 billion. Jakarta’s counter offer was $630 million
Apart from building smelters in the Asian nation, Freeport has committed to spending $1 billion per year for the next five years to move operations underground with block-cave mining set to commence in early 2019. After 2021 Rio gets the 40% share on all production, but in an interview with Bloomberg last month Rio CEO Jean-Sebastien Jacques said for the company to commit to any spending in Indonesia “an investment would need to prove more valuable than competing opportunities”.
Indonesia has also told Freeport, which under the divestment framework retains operational control until 2041, that it would prefer that the joint venture with Rio be concluded ahead of the stake stale, something Freeport has rejected.
Freeport has been mining at Grasberg since the early 1970s and currently owns just over 90% of the local subsidiary PT-FI operating the mine. Freeport has been in negotiations to sell down its stake for the better part of a decade, but talks have repeatedly broken down over valuation.
Last year, Freeport offered a 10.6% stake in PT-FI that valued Grasberg at $16.2 billion. Jakarta’s counter offer was $630 million. The government is arguing that Grasberg’s reserves belong to the state and not the mine operator. Freeport estimates Grasberg’s underground reserves currently being developed at 11.8m tonnes of copper and 24m ounces of gold.
2 Comments
Mike Failla
Rio is right and freeport needs to get out. The greed is going to consume them all The government of indonesia smells blood in the water and they will get it one way or the other. Freeport once again, common sense time, think domestic. You have the reserves and you have the properties, make the headache go away, think domestic. We want to work and we are very friendly to you. The last 8 years were not kind to any mining company but the next 8 years? Hmmmm….. come home and put us all to work. We want you. Indonesia wants to take what you have we want you as part of our mining community here in arizona in particular. Your future and our futures are intertwined.
Oredigr
That is some major league boot licking Mike!