Futures & Commodities

Indonesia's finance chief says mega-mine deal with Freeport will soon be resolved

Key Points
  • Indonesia wants 51 percent control of a massive copper mine in the country
  • Indonesian Finance Minister Sri Mulyani Indrawati tells CNBC that the price of the stake could be resolved with Freeport-McMoRan by end of year
  • Mulyani adds that rejoining OPEC is not on agenda
Indonesia and Freeport McMoran are close to agreement on mining pact: Finance Minister
Indonesia and Freeport McMoran are close to agreement on mining pact: Finance Minister

Indonesia's finance chief said a deal to buy a controlling stake in a massive copper mine in the country could be resolved by the end of this year.

In August, U.S.-based Freeport-McMoRan agreed to sell a 51 percent stake in the Grasberg mine in exchange for licenses to operate the massive copper and gold pit until 2041. The agreement is meant to end public anger over foreign ownership of Indonesia's biggest copper asset, which is also the world's second-biggest copper mine.

Speaking with CNBC, Indonesian Finance Minister Sri Mulyani Indrawati said the agreement has held so far, and it could be executed before 2018.

"I think we will continue making our best effort to make it hopefully even earlier than that. But we will try to do our best and I think the communication is good," she said Wednesday in Washington D.C.

On valuing the 51 percent stake her government agreed to buy, she said the starting point was fair: "I really believe that both parties have a strong intention and willingness to come up with a good agreement which is benefiting Indonesians and Freeport."

As part of the deal, Freeport-McMoRan will also build a second smelter in Indonesia and plans to invest between $17 billion and $20 billion in Grasberg between now and 2031.

OPEC no-go

Indonesia last suspended its membership in OPEC in November 2016 after it said it couldn't agree to the cartel's production caps. Speaking on whether the country would now consider rejoining the group, Mulyani said there were no current discussions.

"Indonesia made this decision a long time ago. I think Indonesia is going to focus more on how we are going to use more of our natural resources in a balanced way. Both fossil fuel and renewable," she said.

The finance minister said the country would, however, remain engaged with international oil developments as the resource remained a crucial part of the Indonesian economy.

Praise for Yellen

In the mid-1990's, Indonesia's current account deficit was putting pressure on the country's ability to maintain the value of its currency against the dollar.

As with fellow South East Asian countries, the Indonesian rupiah was marked sharply lower, thereby drastically raising the burden of debt the country was facing.

When the dust settled on the Asian crisis, Indonesian assets had shed a huge amount of value.

Asked if the country was now free of the risk of a repeat scenario, Mulyani said the economy was better balanced. But a crucial factor, she said, is that the U.S. is now better at monetary management.

"Federal Reserve communication is much better. So they have already (been) explaining, announcing and guiding the global economy of where they want to go and how they are going to do it," she said.

"That provides more understanding and more rational behavior by the market. So even when the interest rates in the U.S. increase, we are actually (at the same time) decreasing the Indonesian repo rate," the minister said. A repo rate is the rate at which a central bank lends money to commercial banks.