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Indonesia begins consolidation of state-owned miners

Holding company structure will help government take over Freeport mine

Workers enter a gold mine, operated by state miner Aneka Tambang at Cibaliung in Banten Province, Indonesia.   © Reuters

JAKARTA -- Indonesia finally began formal moves to merge four state-owned mining companies under one giant holding company, in order to allow it to take over large-scale concessions -- including one of the world's largest copper mines operated by U.S.-based Freeport-McMoRan.

State-owned nickel producer Aneka Tambang (known as Antam) and tin miner Timah reported in separate stock exchange filings on Wednesday that a new government regulation has been issued to formalize the long-planned policy. These are their first filings referring to the plans to form a holding company structure.

The companies said the government's 65% stake in each will be transferred to Indonesia Asahan Aluminium, or Inalum, which will make them subsidiaries of the aluminium producer, which is currently fully owned by the government.

The government will keep control of "Series A" shares in both Antam and Timah, and therefore "retain special rights" -- namely special voting and veto rights -- stipulated under Indonesian law.

Coal producer Tambang Batubara Bukit Asam, another publicly listed state miner set to join the holding company, has yet to make a formal announcement. But all four companies involved are reportedly planning to hold shareholders meetings at the same venue in Jakarta on Nov. 29.

Over the past two years, the government has been intensively campaigning for the formation of state-owned enterprises' holding companies in several sectors -- including mining, oil and gas, finance and construction. Smaller cement, fertilizer, plantation and forestry SOEs had been previously merged under four different entities, although consolidation remains incomplete.

With Wednesday's announcement, the mining holding company looks set to be the first to be established in the second wave of such reorganizations.

The government plans to use Inalum as a vehicle to take over the operations of Grasberg, among the world's largest copper mines in Papua Province, from Freeport. The U.S. mining giant currently owns 90.64% of local subsidiary Freeport Indonesia, but following intense negotiations, it has finally agreed to shed at least a 51% stake to local entities. The Indonesian government currently owns a 9.36% stake in the Indonesian unit.

The State-Owned Enterprises Ministry in September appointed Budi Sadikin, former president of Indonesia's largest lender Bank Mandiri, as the chief of Inalum. Sadikin, then a member of the SOE minister's special staff, was tasked with preparing for the Freeport divestment. 

SOE Minister Rini Soemarno has said on several occasions that the holding entities will create greater synergies and cost efficiency while expanding the SOEs' equity, giving them more access to credit and facilitating larger investments.

Indonesian President Joko Widodo, meanwhile, said the establishment of holding companies is meant to strengthen Indonesian SOEs, "so that they can expand outside the country and become world-class companies."

Shares of Antam, Timah and Bukit Asam dropped 2.9%, 1.1% and 4.8%, respectively, at the close of trading on Wednesday -- sharper than the benchmark Jakarta Composite Index's 0.27% decline.

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