U.S. gold mining major Newmont Mining Corp. said Thursday that it would sell its 48.5% economic interest in PT Newmont Nusa Tenggara, the operator of the open pit Batu Hijau copper and gold mine in Indonesia, to local company PT Amman Mineral Internasional for $1.3 billion.
The sale will involve a closing payment of $920 million and contingent payments of up to $403 million, Newmont said.
“Selling our stake in PTNNT for fair value is aligned with our strategic priorities to lower debt, fund our highest margin projects and create value for shareholders,” Newmont Chief Executive Gary Goldberg said.
Nusa Tenggara Mining Corp., majority owned by Japan’s Sumitomo Corp., has also agreed to sell its ownership stake to PT Amman.
The deal, which is expected to close in the third quarter, comes as miners globally are shedding assets, having been hit by a continued slump in commodities prices. Earlier this month, mining giant BHP Billiton Ltd. agreed to sell its 75% interest in IndoMet Coal to local producer PT Alam Tri Abadi to pursue other growth options that the company 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 profitable venture for Newmont since it started commercial operations there in 2000.
Keeping production up, however, will require a large 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.
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 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 more uncertain licensing system. Analysts and miners say they 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 ban on unrefined ores took effect, Newmont ceased exports and declared force majeure on existing contracts. To receive an export permit—a biannual process—it has had to show it’s making progress on refining or stop shipments. Delays in shipments in 2015 caused Newmont’s fourth-quarter revenue to fall 10% from a year earlier.
A group of Indonesian investors led by listed oil and gas company PT Medco Energy Internasional Tbk had earlier expressed interest in purchasing as much as 76% of Newmont Nusa Tenggara.
On Thursday, Medco announced that it had acquired a controlling stake in PT Amman for $2.6 billion. Medco will receive funding for the purchase from Indonesia’s three largest state-owned banks, the company said.
Globally, Newmont has earned $1.9 billion in the sale of noncore assets since 2013.
The Wall Street Journal
