Rio Tinto (RIO) has confirmed reports that it is in discussions to sell its entire interest in its Grasberg joint venture to state-owned Indonesian resources group Inalum. Grasberg, which is co-owned by New York-listed Freeport-McMoran (US:FCX), is one of the world’s largest copper-gold mines, but has been beset by licensing issues and civil unrest in recent years.
Rio and Freeport have also faced considerable pressure from the Indonesian government, which has long sought control of the mine. The deal, which reports said could value Rio’s stake at $3.5bn (£2.6bn), would allow the Indonesian government, through Inalum, to take a 51 per cent holding in Grasberg.
Analysts at BMO believe Rio’s stake – which entitles the miner to a 40 per cent share of production above specific levels until 2021, and 40 per cent of all output thereafter – is worth around $4bn, assuming a 10 per cent discount rate. Despite the valuation gap, the bank suggested that the sale could be beneficial, citing Grasberg’s continual underperformance and Rio’s ongoing capital expenditure commitments of $200m a year.
