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By Fergus Jensen
JAKARTA, July 13 (Reuters) - Freeport-McMoRan Inc agreed on Thursday to sell a majority stake in the world's second-biggest copper mine to the Indonesian government via a series of complex deals worth $3.85 billion, potentially ending a long-running dispute on mining rights.
That agreement, which could still collapse, will have Freeport give up majority control but remain operator of the Grasberg copper mine, located in the country's eastern province of Papua, as Jakarta seeks to gain greater control over its mineral wealth.
Here are some questions and answers on the agreement:
WHAT HAS BEEN AGREED BETWEEN THE PARTIES?
Freeport and Rio Tinto have agreed on a structure and pricing for a series of transactions to transfer majority ownership of the Grasberg project to Indonesia's state-owned mining holding company, PT Inalum.
Inalum will pay $3.5 billion for Rio Tinto's 40 percent participating interest which Freeport will then convert into an equity holding in local unit PT Freeport Indonesia. Inalum will also pay $350 million for the share of Grasberg held by PT Indocopper Ivestama to take the country's total holding to 51.38 percent in Freeport Indonesia.
IS THIS AGREEMENT BINDING?
Heads of agreements are typically non-binding. However, Indonesia's State Owned Enterprises Minister Rini Soemarno said the agreement is binding while Rio Tinto and Freeport both said the heads of agreement is just a step and not binding.
WHAT ARE THE MAIN ISSUES STILL OUTSTANDING?
Freeport's divestment of ownership of Grasberg is one of the steps the miner must take as it transfers rights to the mine from its current Contract of Work to a special mining permit, to satisfy rules set out in Indonesia's 2009 Mining Law.
Details on exactly how the new permit will differ from the Contract of Work are yet to be revealed, but in essence, it is expected to establish financial and operational guarantees for Grasberg up to 2041.
Indonesia issued Contracts of Work before 2000 and usually royalties or taxes are fixed for the duration of the contract and are generally not subject to government regulation. In contrast, new mining permits are subject to current regulation and places the mining company at a lower status than the government.
Freeport is also required to build a second smelter in line with Indonesia's mining rules, which require mineral ores to be processed domestically to increase the value of the country's exports. According to Freeport, it will have five years to complete a $3 billion smelter project once Inalum has acquired a majority stake.