An aerial
view of Bitu Hijau Open pit Copper and Gold mine.
U.S. gold producer Newmont Mining Corp. said Thursday that
it would sell its 48.5% economic interest in the operator of the Batu Hijau
copper and gold mine in Indonesia to local company PT Amman Mineral
Internasional for $1.3 billion.
The announcement came as Indonesian-listed oil and gas
company PT Medco Energi Internasional Tbk said it had acquired a controlling
stake in PT Amman for $2.6 billion.
A group of Indonesian investors led by Medco had earlier
expressed interest in purchasing as much as 76% of the mine operator, PT
Newmont Nusa Tenggara. Medco said Thursday that it would join forces with an
investment firm led by banker Agus Projosasmito and receive funding for the
purchase from Indonesia’s three largest state-owned banks.
Japan’s Sumitomo Corp., Newmont’s partner in Newmont Nusa
Tenggara, has also agreed to sell its ownership stake to PT Amman.
Newmont said the sale of its stake at “fair value aligned
with its strategic priorities to lower debt, fund highest margin projects and
create value for shareholders.”
“Our goal is to build a portfolio of long-life, low-cost
assets with the technical, social and political risks we are well-equipped to
manage,” Newmont Chief Executive Gary Goldberg said in a conference call to
discuss the transaction, noting that earlier divestments have lowered risk.
The sale will involve a closing payment of $920 million and
contingent payments of up to $403 million, Newmont said. Globally, Newmont has
gained $1.9 billion from sales of noncore assets since 2013.
The latest deal, which is expected to close in the third
quarter, comes as miners world-wide are re-evaluating their assets, having been
hit by a slump in commodities prices. In early June, mining giant BHP Billiton
Ltd. agreed to sell its 75% interest in Indonesia’s IndoMet Coal to local
producer PT Alam Tri Abadi, in a move to pursue other growth options that BHP
said were more attractive for future investment.
Colorado-based Newmont and Sumitomo operate the Batu Hijau
copper and gold mine on the island of Sumbawa in Western Indonesia.
The mine—one of Indonesia’s largest copper deposits—has been
a largely profitable venture for Newmont since it started commercial operations
there in 2000.
Keeping production up, however, will require a hefty
investment in the next phase of development at a time when Newmont has been hit
by increasingly burdensome regulation and uncertainty about the future of its
operating contract.
Jorge Beristain, a metals and mining analyst at Deutsche
Bank, estimated that around $1.6 billion is needed for the next stage of
expansion.
The company said its debt burden would “improve
significantly” without Batu Hijau.
Some analysts had earlier said Newmont’s efforts to sell off
its stake also suggests concerns about the long-term outlook for the Indonesian
mining industry.
Vast deposits of copper, nickel and coal have lured foreign
miners to Indonesia for decades and mining has contributed greatly to economic
growth in the country. But growing nationalism and the desire among some
officials to grab back control of the country’s natural resources has raised
risks.
Rules issued in recent years have pushed foreign miners to
divest majority stakes, pay higher taxes and royalties and invest in processing
unrefined ores. By law, miners are also required to eventually shift from
long-term contracts of work to a licensing system. Analysts and miners say the
rules make little sense at a time when miners globally are re-evaluating their
investments and Indonesia is trying to draw in more foreign capital.
After the rule banning the export of unrefined ores took
effect, Newmont ceased exports and later declared force majeure on existing
contracts. To receive an export permit—a biannual process—the U.S. Company has
had to show it is making progress on refining or stop its shipments. Delays in
shipments in 2015 caused Newmont’s fourth-quarter revenue to fall 10% from a
year earlier.
Credits: The Wall Street Journal