Government rejects PT Freeport share price offer

The government has finally sent a letter to gold and copper giant PT Freeport Indonesia in response to the US$1.7 billion price offered by the company for its 10.64 percent stake, saying that it?s too expensive.

Director General of Mineral and Coal at the Ministry of Energy and Mineral Resources Bambang Gatot Ariyono said on Tuesday that the letter was sent last week. ?We rejected the share price offer,? he said, but declined to disclose the price the government wants for the shares as it is part of price negotiation strategy.

PT Freeport on January 13 made the $1.7 billion price offer for the 10.64 percent shares to be divested to Indonesian investors as part of a mandatory divestment program, taking into account its gold and copper reserves that last until 2041. This also assumes that the government would renew PT Freeport?s current mining contract which is set to expire in 2021.

Bambang said that the ministry has insisted to use the replacement cost mechanism, valuing the PT Freeport shares based on the investment which has been made by the company until it made the share price offer. Assuming that PT Freeport has made about US$9.7 billion in investment until 2015, excluding financial obligations and amortization, the 10.64 percent shares should be valued at $1.03 billion. (*)